Oil reaches some of its highest levels for years as OPEC and allies walk away from July’s meeting.
OPEC+ were on the cusp of making a new deal at its July meetings, but talks have broken down.
What the market was anticipating as being more of a formality than a full-blown tussle has turned into something sour. July’s meeting has been abandoned.
The cartel and allies have been steering the course of oil markets successfully over the pandemic, but now faces a major hurdle in establishing harmony.
The UAE and the rest of the cartel are at loggerheads over OPEC+’s production tapering proposals. A plan to raise output by 400,000 bpd from August to December, and keep cuts in place beyond the April 2022 deadline, are yet to pass muster with the UAE.
The emirate is willing to accept the deal if its quota requirements are upgraded to match Saudi Arabia’s. Obviously, as OPEC top dog, the Saudis aren’t particularly keen on that. As such, meetings have been called off.
What’s bad news for OPEC is good news for oil traders. Prices have shot to highs not seen since November 14. WTI is trading at $76.65.
Brent crude is pushing the $78 level, trading at around $77.70 at the time of writing.
However, the breakup of talks suggests two things. Firstly, that competition amongst OPEC+ is growing in the face of higher global oil demand and higher prices. Second, concerns about global oversupply are still there.
Away from OPEC, US crude inventories are now at some of their lowest levels for years. A combination of slowing domestic production and rocketing fuel demand means stockpiles continue to drop week on week.
According to EIA data, US reserves stood at 452.3m barrels as of week ended June 25th. That is a 15.2% year-on-year increase, and also 3.4% lower than in the same week in 2019.
Stocks at Cushing, Oklahoma, the US’ designated NYMEX crude futures delivery point, have dropped too. Stocks were down 1.5m barrels as of week ended June 25th, totalling 40.1m barrels – a 23.3% decline against 2019’s pre-pandemic levels.
Natural gas prices started the week at a bullish $3.738.
However, weather forecasts may cause fluctuations in demand over the coming weeks. According to NaturalGasWeather predictions, national demand is expected to ease this week with heavy showers over the Great Lakes and East.
Next week, national demand will increase next week due to hot conditions over the West and warm conditions over the South and East.
Attention is being paid to Cyclone Elsa brewing in the Gulf. Demand may fall upon the colder, rainy temperatures Elsa could generate. LNG cargoes could also slow.
Overall, the pattern remains just strong enough to be bullish over the coming week and into the next.
Looking at stockpiles, the EIA’s report for week ended June 25th showed natural gas in storage rose 76 bcf during the review period.
The injection boosted stockpiles to 2.558 trillion cubic feet (Tcf), which is still 5.3% below the five-year average of 2.701 Tcf for this time of year.
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