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Oil prices lose ground on Opec stalemate

Issac John /Dubai
issacjohn@khaleejtimes.com Filed on July 8, 2021
Reuters

Oil prices fell for a third day on Thursday amid the lingering uncertainty over supply as well as fears over the possibility of abandoning the current output agreement.


Oil prices are losing ground from the highs they reached earlier in the week, as the market is pricing in fears that the Opec+ deal could be scrapped as a result of the current negotiations deadlock.

Oil prices fell for a third day on Thursday amid the lingering uncertainty over supply as well as fears over the possibility of abandoning the current output agreement.

Brent crude oil futures slipped by 23 cents, or 0.3 per cent, to $73.20 a barrel by 0644GMT, while US West Texas Intermediate futures were down 33 cents, or 0.5 per cent, at $71.87 a barrel.

Brent prices have fallen about 5.0 per cent since Monday's close after talks between the Opec and its allies fell apart over a disagreement between the UAE and Saudi Arabia on raising output under the group's supply cut agreement.

Rystad Energy’s oil markets analyst Louise Dickson said a jettison of the current output deal is rightfully spooking market participants.

“If the current Opec+ discord and attempts at price stoking continue, a post-summer correction would follow, and potentially set the stage for an even more bearish 2022 price environment,” said Dickson.

Collectively, Opec+ group has about 8.7 million bpd of crude production that could theoretically be activated and produced within just months.

Excluding Iran, Venezuela and Libya, which are currently except from group cuts, the Opec+ group’s total spare capacity is 6.7 million bpd. Much of this spare capacity is commercially incentivizing at more than $70 per barrel.

“As long as Opec+ collectively keeps its production boost below 1.6 million bpd for August, we believe the market can absorb this unexpected supply,” said Dickson.

‘However, if Opec+ were to increase production by 2.0 million bpd for August, then we would expect further downward pressure on prices. But if the deal falls apart, it will be a guessing game of how much supply each individual producer brings back,” Rystad Energy’s analyst said.

"The oil market is looking beyond the oil supply deficit in August and expecting the Opec+ agreement to fall apart well before April 2022 when the agreement expires as other member countries will ask for further concessions to secure more market share," said Edward Moya, senior market analyst at Oanda.

Russia is trying to mediate between the UAE and Saudi Arabia to help strike a deal to raise oil output, three Opec+ sources said on Wednesday.

Prices found some support from a large drop in oil inventories in the United States. Oil stockpiles in the world's biggest oil user fell by 8.0 million barrels for the week ended July 2, according to two market sources, citing American Petroleum Institute figures, compared with an estimate of a 4.0-million-barrel fall by analysts in a Reuters poll.

“The current Opec+ spat highlights not only the fragility of the market in a specific Covid-19 context, but also the broader animosity brewing between the group of 23 nations that are forced to come together to manage the market, but of course, have direct competition interests in selling their oil at the highest price for the most sustainable time period,” said Dickson. — issacjohn@khaleejtimes.com

author

Issac John

Editorial Director of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.





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