0230 GMT: Crude oil futures were steady to lower during midmorning Asia trade July 12 as market participants awaited further pricing cues amid uncertainty about the OPEC+ coalition’s production plans from August onward.
At 10:30 am Singapore time (0230 GMT), the ICE September Brent futures contract was down 11 cents/b (0.15%) from the previous close at $75.44/b while the NYMEX August light sweet crude contract was down 8 cents/b (0.11%) at $74.48/b.”There is still plenty of uncertainty over OPEC+ production plans for August. It appears as if the UAE and Saudi Arabia are still struggling to come to an agreement. Therefore prices are likely to remain volatile until we have some clarity around this issue,” ING’s Head of Commodities Strategy, Warren Patterson, and Senior Commodities Analyst, Wenyu Yao, said in a July 12 note.
UAE had objected to Saudi Arabia’s plan to tie OPEC+ production increases to a lengthening of the supply management pact through to the end of 2022, insisting that its baseline production level, from which its quota is determined, be raised first.
As a consequence of UAE’s objections, the OPEC+ coalition canceled its July 5 meeting, failing to ratify an increase in production August onward. In the absence of an agreement, the alliance is expected to keep production quotas at July levels, keeping 5.8 million b/d of output away from the market.
The uncertainty regarding OPEC+ production was exacerbated by unconfirmed media reports that the UAE is considering increasing production outside of the OPEC+ agreement. These media reports have raised fears of a breakdown in the OPEC+ cooperation, which could result in reduced compliance to quotas and an increase in oil supply.
Amid the deadlock, ING analysts said investors reduced their net longs in the oil futures contract in the week ended July 9, adding that the bulk of this reduction was driven by longs liquidating, rather than fresh shorts.
”It would appear, given the uncertainty over OPEC+, that speculators have decided to take some risk off the table,” they said.
”Crude’s upward momentum may remain arrested until the OPEC+ wrangle is resolved,” Vandana Hari, CEO of Vanda Insights, said in a July 11 note. Hari added that in the background, oil’s bullish demand recovery remains intact.
”US oil stockpiles continue to decline rapidly, especially crude, and domestic fuel consumption is rocketing,” she said, referring to the Energy Information Administration data released July 8 that showed US crude inventories plunging to their lowest level since February 2020. US gasoline demand also reached an all-time high in records dating back to 1991.
The market will continue to look forward to inventory data releases from the EIA and the American Petroleum Institute, due for releases July 14 and July 15, respectively. In addition, the market will await the International Energy Agency and OPEC’s monthly oil market reports, due to be released July 13 and July 15, respectively.