- Crude oil futures were lower during mid-morning trade in Asia July 15 after the impasse between Saudi Arabia and the UAE on OPEC+’s oil production quotas for August.
- It showed signs of a resolution, alleviating concerns of near-term supply shortage.
A Platts news source by Reetika Porwal says that Crude oil futures dip as tight supply concerns ease.
Brent futures contract
The ICE September Brent futures contract was down 74 cents/b (0.99%) from the previous close at $74.02/b, while the NYMEX August light sweet crude contract was down 70 cents/b (0.96%) at $72.43/b.
The overnight progress in finding a compromise to the Saudi Arabia-UAE standoff with regards to oil production quotas for August and beyond, allayed concerns of the OPEC+ — a coalition of OPEC and other oil producers — alliance sticking to the prevailing July production policy for the months ahead, which was expected to result in supply tightness.
Crude oil’s rally fizzled
“Crude oil’s rally fizzled on signs of stronger supply. Brent crude oil prices fell after news broke early in the session that Saudi Arabia and UAE were close to a deal on increasing production,” ANZ analysts said in a July 4 note.
The deadlock was due to the UAE wanting to change its production baseline within the OPEC+ pact from 3.16 million b/d to a new April 2020 baseline of 3.84 million b/d, which it argued was fair and representative of current production.
“The deal will take some time to get finalized, but it seems the UAE will be allowed to produce more output next year. It seems OPEC+ will shortly have a plan to raise output and that is welcomed news as surging demand had oil market getting too tight,” Edward Moya, senior market analyst at OANDA, said in a July 15 note.
UAE’s successful negotiation
Analysts noted that UAE’s successful negotiation for a higher baseline capacity may open the door for other members of the bloc to do the same, as the increase in UAE’s baseline capacity needs to be ratified by the rest of OPEC+ before it can be finalized.
“Iraq and other members may now seek a higher baseline from May 2022 as well, but Saudi influence will likely prove decisive,” S&P Global Platts Analytics said in a July 14 note.
The weekly inventory report
Meanwhile, the weekly inventory report by the US Energy Information Administration, released late July 14, reflected an unexpected build in gasoline and distillate inventories in the week ended July 9, further pressuring sentiment in the market despite a seemingly bullish draw in crude inventories.
“EIA data showed gasoline inventories rose by 1 million barrels last week, while distillate stockpiles [also] grew. This was mitigated somewhat by a 7.9 million-barrel drawdown in commercial crude oil inventories,” noted ANZ analysts.
An S&P Global Platts survey
An S&P Global Platts survey had projected a commercial crude dip of 4.9 million barrels, a gasoline inventory decline of 1.6 million barrels, and a 1.3 million-barrel jump in distillate stocks.
“Another large draw [in crude inventories] did little to boost oil prices as traders focused on the first rise in total petroleum stocks since early June,” Moya said.
The market is now awaiting OPEC’s monthly oil market report due for release later on July 15 for an update on OPEC’s views on the market.
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Platts
