U.S. West Texas Intermediate and international-benchmark Brent crude oil futures ended the week lower with little change, despite significant daily volatility. Prices were weighed down early in the week by the collapse of output talks between the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, together known as OPEC+. Prices were lifted, however, late in the week as traders reacted to falling U.S. inventories.
OPEC+ Abandons Oil Policy Meeting after Saudi-UAE Clash
OPEC+ ministers called off oil output talks last Monday after clashing last week when the United Arab Emirates rejected a proposed eight-month extension to output curbs, meaning no deal to boost production has been agreed.
Saudi energy minister Prince Abdulaziz bin Salman had called for “compromise and rationality” to secure a deal after two days of failed discussions the previous week. But four OPEC+ sources said there had been no progress. OPEC’s Secretary General Mohammad Barkindo said in a statement on Monday the meeting had been cancelled, without a date for the next one being agreed.
Some OPEC+ sources said there would be no oil output increase in August, while others said a new meeting would take place in the coming days and they believed there would be a boost in August.
API, EIA Crude Oil, Gasoline Inventories Report Provide Support
The American Petroleum Institute (API) last Wednesday reported a draw in crude oil inventories of 7.983-million barrels for the week-ending July 2. Analysts had expected a fall of 6.2 million barrels.
The API also reported a build in gasoline inventories of 2.736-million barrels for the week-ending July 2 – on top of the previous week’s 2.148-million-barrel build. Analysts had expected a draw of 0.886 million barrels. Distillate stocks saw an increase in inventories this week of 1.086 million barrels for the week, compared to last week’s 428,000-barrel increase.
In other supply-related news, U.S. government data showed a much bigger drop than expected in crude and gasoline inventories.
U.S. crude inventories fell by 6.9 million barrels the week-ending July 2 to 445.5 million barrels, Energy Information Administration data showed. Analysts had forecast a 2.2 million-barrel drop. Gasoline stocks fell by 6.1 million barrels in the week to 235.5 million barrels, the EIA said. Analysts had forecast a 2.2 million-barrel drop.
This week, the two factors likely driving the price action will be tight supplies and concerns about the potential escalation of coronavirus variants on the global economy.
Supplies are likely to remain tight as long as the impasse in talks among key producers continues. Another drop in U.S. crude and gasoline inventories will also underpin prices.
The most bullish scenario will be the continuation of current production cuts and rising demand. However, uncertainty could develop in the markets if some OPEC+ members decide to abandon current production restrictions, or if OPEC+ reaches an agreement on higher output levels for August.
A jump in COVID-19 infections could also be bearish if it leads to renewed lockdowns and travel demand.