Oil declines after OPEC + pledges to increase production until 2022
(Bloomberg) – Oil plunged after OPEC + agreed to increase production until 2022, resolving an internal dispute that rocked the alliance.
Brent crude fell 0.4% at the start of Asian trading after losing 2.6% last week, while West Texas Intermediate slipped. The Organization of the Petroleum Exporting Countries and its allies will add 400,000 barrels a day each month from August until all of its interrupted production has resumed. The deal also gives Saudi Arabia, the United Arab Emirates, Iraq, Kuwait and Russia higher benchmarks against which their production cuts are measured from May 2022.
The complex pact, announced this weekend after a row between Saudi Arabia and the United Arab Emirates, gives traders a better idea of how quickly the cartel will restore the 5.8 million barrels per day it is withholding always, since it made dark cuts last year in the early stages of the pandemic. It also resolves long-standing grievances that have tested the unity of the alliance.
After rising 45% in the first half of the year, Brent has gone through a turbulent period this month. The bitter OPEC + feud has sparked confusion among investors over the group’s production plans, just as the spread of the delta variant has raised concern over the potential impact of new outbreaks on demand. Yet, with inventories dwindling, market watchers, including the International Energy Agency, have said additional barrels are needed to fill an expected shortfall.
The more infectious delta variant is still on the rise, especially among the unvaccinated, with some countries reimposing tighter restrictions. In Asia, Thailand, Indonesia, South Korea and Singapore are all facing epidemics. Elsewhere, the UK reported the highest number of cases since January on Saturday.
Oil traders will also be on high alert in the coming days for the first export of Iranian crude outside the Persian Gulf and across the Strait of Hormuz. The Islamic Republic plans to ship a shipment of crude from Jask to the Gulf of Oman, according to Vahid Maleki, director of the Jask oil terminal.
Brent’s quick time spread was little changed at 64 cents per barrel in offset, an uptrend with near-date prices trading above more distant ones. This is down from 74 cents a week ago.
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