Opec anticipates a big comeback in oil demand in the second half of 2021 as stocks fall, but the production organization also views coronavirus strains as a threat to the resurgence.

Opec Secretary-General Mohammad Barkindo told the Joint Technical Committee of Opec+, an alliance made up of Opec nations, Russia, among their allies, that demand in 2021 was anticipated to increase by 6 million barrels per day (bpd), with 5 million bpd of that coming in the second half.

“The present ‘wild card' component is the pandemic's ‘Delta Variant,' which is causing growing cases and repeated limitations in many areas,” he remarked.

Preliminary May statistics show inventories in OECD industrialized nations dropping below the 2015-2019 level, according to Barkindo, implying that growth in the second half will be “significantly higher, even if ambiguities and related risks are considered.”

One of the major aims of the Organization of Petroleum Exporting Countries and its partners is to bring oil stocks in line with the five-year average.

According to Opec+ insiders and market observers, the group will consider another gradual relaxation of existing oil output restrictions commencing in August.

Barkindo expressed concern that growing national debt levels, fueled by fiscal and monetary stimulus programs, would lead to increasing inflation in the following months.

The Opec+ group of oil-producing nations would gather on Thursday and are likely to agree to increase output in August to satisfy demand and reduce recent price increases.

While increased demand drove the group's most current increased production, pricing levels will now be a driving force in the club's actions.

Following the outbreak of the coronavirus pandemic last year, which prompted oil prices to momentarily fall, the club lead by Saudi Arabia and Russia enforced severe production restrictions in an attempt to boost prices.

The 13 members of Opec and its ten friends in the Opec+ grouping were compensated upon seeing prices for the two reference contracts, Brent and WTI, return to levels not witnessed since October 2018.

However, that plan had worked too well, and the firm is now adopting a policy of gently reopening the taps.

While rising prices appear to become a windfall for producers – and some would be striving to expand supply to cash in – there are concerns.

Russia is anticipated to favor increased output, as it has at previous Opec+ meetings.

According to Ole Hansen of Saxobank, Moscow “may be more are likely to support a production rise to secure a greater market share while reducing the danger of growing non-Opec output.”

“Pressure will come not only from inside the group but also from important consumers as nations emerge from the other side of Covid-19 lockdowns,” says Warren Patterson of ING bank.

India is a prime example. The world's third-largest oil consumer has been struck by a violent coronavirus outbreak in recent months, prompting OPEC+ to "phase out crude output cutbacks to moderate growing inflationary pressures," according to PVM's Stephen Brennock.

“If prices stay this high, it would consume consumers' disposable budgets and perhaps stifle economic development, which could impact on crude prices over time,” Thinkmarkets' Fawad Razaqzada stated.

The International Energy Agency (IEA) forecasted in the most recent report in mid-June that world demand would exceed pre-pandemic levels by the end of 2022.

According to Jeffrey Halley of Oanda, demand will be bolstered as “Americans welcome a travel intensive summer” on automobiles, aircraft, and cruises, and because “global vaccine deployment is enhancing.”

As seems to be the case in previous months, the cartel would have to keep an eye on diplomatic developments involving one of its members in particular – Iran.

If current talks on resuming US participation in the 2015 Iran nuclear deal are successful, the nation could be able to restore oil exports at rates before 2018, when former US President Donald Trump abruptly withdrew from the agreement and reinstated sanctions.

This is unlikely to have an impact on the market until later in the year, and there are numerous other variables at work.

Because of the spread of the extremely infectious Delta form of the coronavirus, new limitations have been implemented in Australia, South Africa, and Thailand.

Since December, the Opec+ nations have met every month to align their approach as closely as feasible with the latest happenings.

Oil prices climbed on Tuesday as widespread optimism for a revival in demand remained, despite new occurrences of the highly infectious Delta form of the coronavirus forcing additional travel restrictions across the world.

Brent oil futures were up 50 cents or 0.7% at $75.18 a barrel by 1400 GMT, after falling 2% on Monday.