As is well-known by now, the July OPEC+ meeting never concluded as the UAE and Saudi Arabia/Russia failed to overcome their differences, with the former asking for a higher baseline from April 2022 and the latter for an extended commitment through 2022. Picking up on this development Goldman’s commodity strategist Damien Courvalin – who has been extremely bullish oil in recent months – concedes that while this lack of agreement has introduced uncertainty into the OPEC+ production path, its base-case remains “for a gradual increase in production through 1Q22 that would ultimately help meet their preferences, with Brent prices at $80/bbl this summer.”

Looking ahead, Goldman predicts that as negotiations continue, most outcomes (1) still imply higher prices in coming months as the physical market tightens, (2) with higher OPEC+ production than the group discussed needed by the global oil market next year. That said, Goldman warns that price volatility will likely rise – which can be clearly seen in today’s violent reaction which saw WTI surge then slide – with the release of the August OSP the key next catalyst.

But the most important observation in the Goldman note is that OPEC+ drama notwithstanding, the world will still be in trouble unless an additional 5mmb/d in production emerge by year-end, to wit: “while the threat of a new OPEC+ price war is no longer negligible, “its negative price impact would be dampened by a global market starting in a 2.5 mb/d deficit and in need of an extra 5 mb/d in production by year-end to avoid critically low inventories.”

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