This post was originally published on this site
Oil futures edged higher Friday, but the U.S. benchmark remained on track for its biggest weekly drop since March, on expectations a compromise between the United Arab Emirates and Saudi Arabia will allow OPEC+ to further relax production curbs beginning next month.
West Texas Intermediate crude for August delivery
CL00,
CLQ21,
rose 19 cents, or 0.3%, to $71.84 a barrel on the New York Mercantile Exchange, leaving the U.S. benchmark down 3.7% and on track for the biggest weekly fall for a most actively traded contract since the week ending March 19, according to FactSet.
September Brent crude
BRN00,
BRNU21,
the global benchmark, was up 7 cents, or 0.1%, at $73.54 a barrel on ICE Futures Europe, leaving it down 2.7% for the week, which would be its biggest slide since May.
Crude prices fell sharply Wednesday after reports said the U.A.E. and Saudi Arabia had reached a compromise in their dispute over output cuts. The deal would reportedly allow the U.A.E. to use a higher baseline to determine its output level beginning in April. OPEC+ has yet to ratify the deal, which would see the group further relax its existing output cuts by around 400,000 barrels a day per month from August through December, adding around 2 million barrels a day of production by the end of the year.
“All signs indicate that OPEC+ is heading for a potential compromise agreement that will allow U.A.E. to secure a baseline adjustment, but other producers will undoubtedly seek similar treatment and potentially prolong the deliberations” heading into an August meeting, wrote analysts at RBC Capital Markets, in a note.
The fall in crude prices, meanwhile, “is remarkable in view of the steep decline in U.S. crude oil stocks and the prospect of a marked rise in oil demand and a sizable supply deficit in the months until year’s end,” wrote Carsten Fritsch, analyst at Commerzbank, in a note.
Fritch noted that OPEC, in its monthly report Thursday, forecast oil demand to rise to 99 million barrels a day by the end of 2021, around 5 million barrels a day higher than in the first six months of the year. OPEC looks for demand to hit pre-pandemic levels in 2022, topping 100 million barrels a day later in the year.
The problem for crude may revolve around whether the Saudi-U.A.E. compromise can be agreed without other countries also demanding a rise in individual output levels, Fritsch said.
“Even if the United Arab Emirates and Saudi Arabia have agreed on a higher level of oil production for the U.A.E., this would still need to be approved by the other OPEC+ countries,” he said. “They could well demand the same for themselves, and would have every right to do so. In which case we could quickly end up with too much oil being placed on the market.
“ After all, OPEC+ is still withholding nearly 6 million barrels per day – and the call on OPEC is not sufficiently high as to absorb this additional supply,” Fritsch said.
