Oil Edges Up With OPEC+ Delaying Talks to Resolve Differences

A valve control wheels on a crude oil pipe in Russia. (Photographer: Andrey Rudakov/Bloomberg)

Oil Edges Up With OPEC+ Delaying Talks to Resolve Differences

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Oil closed higher with OPEC+ ministers divided ahead of a key meeting later this week on production policy.

Futures in New York managed to eke out a small advance after switching between gains and losses on Tuesday. While OPEC+ members such as Russia have considered backing an increase in output, Saudi Arabia has exercised caution in the face of growing demand and global spread of the delta variant. The alliance delayed preliminary talks between ministers by one day to allow more time to resolve differences.

Meanwhile, futures clung to gain in after-market trading after the industry-funded American Petroleum Institute was said to report U.S. crude supplies fell 8.15 million barrels last week. That would be the largest inventory decline since January if U.S. government data confirms it on Wednesday.

“We’ll see the trading continue to be choppy until Thursday when the actual meeting is held and we get the official decision,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.

Oil Edges Up With OPEC+ Delaying Talks to Resolve Differences

Oil prices have climbed about 50% this year as key economies such as the U.S., U.K. and China have reopened, buoyed by mass vaccination campaigns. But the recent spread of the delta variant threatens to slow an ongoing global demand recovery. The resurgence may even lead to export-focused refiners in Asia trimming processing rates.

At the start of the OPEC+ alliance meeting on Tuesday, Secretary-General Mohammad Barkindo praised the market’s strong fundamentals but cautioned that it’s “not completely out of the woods yet.” The 23-nation alliance is expected to revive some of the halted supplies it shuttered when demand collapsed, with analysts expecting an increase of 550,000 barrels a day.

Even a larger-than-expected supply boost from OPEC+ will not reach inventories in time to alleviate the tight market, Goldman Sachs Group Inc. analysts including Damien Courvalin and Jeff Currie wrote in a report.

“Ultimately, much more OPEC+ supply will be needed to balance the oil market by 2022,” they said.

Prices
  • West Texas Intermediate for August traded at $73.45 a barrel at 4:47 p.m. in after-market trading after settling at $72.98 a barrel in New York
  • Brent for August settlement traded at $75.08 in after-market trading after ending the session at $74.76 a barrel
    • The prompt timespread for Brent was 48 cents in backwardation, compared with 73 cents a week earlier

The API also reported stockpiles at the nation’s largest storage hub in Cushing, Oklahoma, fell 1.32 million barrels last week. Gasoline supplies rose 2.42 million barrels, the data showed.

Meanwhile, the delta variant has become dominant in France and Germany, and the U.K. on Monday reported most new Covid-19 cases since January. Close to half of Australia’s population is now in lockdown as the nation struggles to contain the spread of the strain.

“The delta variant will continue to be in the background and potentially keep the commodity from exploding higher,” said Babin.

Other market news:
  • Oil stockpiles in China have sunk to the lowest this year as refineries boost run rates, suggesting robust demand from the world’s biggest importer of crude should continue to underpin a buoyant global market.
  • Indian pump prices are in uncharted territory as ever-increasing government levies coincide with crude’s recovery from the depths of the Covid-19 pandemic.
  • Saudi Aramco is expected to increase its official selling price of Arab Light crude by 50 cents a barrel month-on-month for August sales to Asian customers, according to a Bloomberg survey.

©2021 Bloomberg L.P.

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