Oil collapses as market ignores US draw to focus on UAE no-deal By Investing.com
By Barani Krishnan
Investing.com – Even the second-largest US crude draw for this year might not do it for the oil bulls – not when there are bigger fish to fry on the market.
OPEC + sources, speaking anonymously, told media on Wednesday that the August production quota standoff between the UAE and Saudi Arabia had been resolved because the two had apparently concluded a deal.
Hours later, the Emirates retaliated, claiming nothing was decided. “No deal has yet been reached with OPEC + on a supply agreement, and discussions are still ongoing,” the UAE’s energy ministry said.
With that, oil prices, which rose sharply in the previous session and ahead of the release of U.S. inventory numbers on Wednesday, plunged again, continuing their descent even after data showing a consecutive weekly draw of eight crude stocks. .
The New York market, the benchmark for U.S. oil, was down $ 2.08, or 2.8%, to $ 73.17 a barrel at 1:37 p.m. ET (5:37 p.m. GMT).
The London market, the world’s oil benchmark, fell $ 1.76, or 2.3%, to $ 74.73.
The collapse defied the 7.9 million barrels last week reported by the US Energy Information Administration (NASDAQ :). This is the largest weekly drop of its kind since the 8.0 million barrels reported for the week of May 3.
“The Emiratis are showing they are unwilling to take the Saudis’ crumbs,” said John Kilduff, founding partner of New York energy hedge fund Again Capital. “It’s a battle for market share now that oil prices are so high and it looks like the Saudis have to compromise with the UAE if they want to keep prices at these levels.”
Until the dispute between Saudi Arabia and the United Arab Emirates, oil had a near perfect recovery, with WTI up 57% on the year and Brent up nearly 50% on the unit production model shown by OPEC +.
OPEC + – which brings together the original 13 members of the Saudi Arabia-led OPEC, or the Organization of the Petroleum Exporting Countries, with 10 matching oil producers led by Russia – began by retaining 10 million barrels a day from the market to bring back prices virtually destroyed. by the coronavirus pandemic.
It is only in recent months that the 23-member alliance has started to increase production, and this too marginally. So far, OPEC + is withholding nearly 6.0 million barrels of daily capacity from buyers in a market that may run out of supply as summer demand for energy peaks. This is what led to a fairytale rally for minus $ 40 a barrel oil. US crude at the height of the COVID disaster at around $ 75 now.
OPEC + was supposed to have agreed to a hike of at least 400,000 barrels a day for August.
Theoretically, the less oil on the market, the better for the price. But in the case of OPEC +, the standoff between Saudi Arabia and the United Arab Emirates also sent signals that the admirable production unit that previously existed in the group could be ended and more countries could. wanting to produce more barrels if they could.
Oil prices haven’t exactly collapsed in the stalemate between Saudi Arabia and the United Arab Emirates. But they have become much more volatile after having practically increased in one direction for almost two consecutive months.
But the oil problems are not limited to OPEC alone.
The spread of coronavirus variants and uneven access to vaccines threaten the global economic recovery, the chief financial officers of major G-20 economies warned on Saturday. If Southeast Asia and Australia have largely been the subject of new variants, the Western capitals have not been spared either.
The United States has recorded the highest number of Covid cases over the weekend since May as the highly transmissible Delta variant of the virus became more prevalent. There are fears that the Covid variants will hit all modes of travel around the world again, impacting oil consumption.
There is also the “China problem”.
Import quota shortages, maintenance of refineries and rising world prices combined in China’s first half-yearly oil consumption contraction since 2013. Chinese oil imports fell 3% from January to June, from one year to the next.
China’s tactic to lower oil prices is similar to its strategy to lower prices after the metal hit record highs of $ 10,746 in May. With a sharp reduction in imports, Beijing has managed to bring copper below $ 9,400.
The emergence of China as a new negative force against oil makes the outlook for crude demand more questionable. This proves that Beijing is not just a cheerleader in the super commodity cycles; he can also be a silent bear when prices aren’t keeping up with his or her economy.
“China amassed a huge amount of oil when prices hit their lowest level in 20 years and as prices continue to rise, China will increasingly have an incentive to draw on its reserves rather than import. expensive oil, ”Osama Rizvi of Primary Vision Network said in a blog earlier this month.
“While this is unlikely to change the underlying fundamentals of the oil markets, the reduction in Chinese imports is certainly one of the factors that could finally lead to a shift in sentiment in the oil market,” Rizvi said.