Oil prices ended last week little moved, but are still posting their deepest weekly loss since March as a combination of factors are weighing on barrel prices. Markets are increasingly concerned about a sharp rise in coronavirus cases in the Asian region, which has triggered new lockdowns and could hit recovery of oil demand.
The dispute between the UAE and Saudi Arabia seems to be on its way to resolution, which could pave the way for a roll back in production cuts by Opec+ members.
On the 14th of July oil fell sharply, accelerating to the downside after weekly US inventory data showed an unexpected increase in gasoline stocks. Data also reported a drop in implied demand, although oil stocks fell more than expected. On the OPEC+ front, the situation appears to be evolving. According to reports, a bilateral agreement has been reached between the Emirates and Arabia. It includes an increase in the baseline for the Emirates next year (effectively allowing them to increase their production), an extension of the OPEC+ agreement until the end of 2022 and the subsequent green light for an increase of 400,000 b/d from August to the end of the year.
On Monday, OPEC and other partners have reached an agreement to inject more oil into the the recovering global economy. It overcame internal split that had been threatening the cartel’s control over the crude market.
The deal on the table is short of the previously anticipated version and will allow monthly supply increases of 400,000 barrels a day. It also It puts OPEC+ back in control of the market after two volatile weeks in which retailers have considered the possibility of the cartel breaking up. Such risk has been averted, at least for now.
The agreement is proof of the strong ties between the members and shows that “OPEC+ is here to stay,” said Saudi energy minister Prince Abdulaziz bin Salman.
Oil prices fell early Monday, although analysts noted that the agreement maintains tight control over supply. Brent crude fell 0.8 percent to $73.02 at 7 a.m. in London.
Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd said that “The agreement reached over the weekend will likely lead to further weakness in the short term as investors’ positions on the prospects of more supply”.
The truce between the two long-standing allies will alleviate an impending supply crunch and reduce the risk of an inflationary peak in oil prices. It also concludes the diplomatic dispute that scares traders, reviving speculation that the United Arab Emirates might be willing to leave OPEC – as it threatened to do last year.