Crude oil prices pushed higher Wednesday, rebounding after Tuesday’s sharp selloff as the failure of a group of major producers to maintain unity of output levels added extra volatility to the market.
By 9:30 AM ET (1330 GMT), U.S. crude futures traded 0.6% higher at $73.80 a barrel, after settling 2.4% lower Tuesday, its sharpest loss in three weeks, while the Brent contract rose 0.7% to $75.02, after dropping 3.4% during the previous session.
U.S. Gasoline RBOB Futures were up 0.5% at $2.2395 a gallon.
The Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, failed to agree earlier this week a deal to boost production, with the United Arab Emirates holding out for a large share of exports, despite growing demand as the global economy recovers.
Although seemingly positive for prices, this disruption of the unity over production cuts within the wider group potentially could result in millions of additional barrels a day hitting the market over the coming months and years.
“It is unrealistic to think that failing to agree on output levels from August onwards would mean that output remains unchanged, particularly when you consider that the reason there is a disagreement is that the UAE wants to increase its baseline if the deal is extended beyond April 2022,” said analysts at ING, in a note.
“There is still likely to be plenty of noise around what OPEC+ may do in the coming weeks, and so that means volatility is likely to remain.”
The Wall Street Journal reported earlier Wednesday, citing officials familiar with the matter, that the rationale behind the UAE’s change of stance was to gain market share by selling as much crude as possible before demand dries up.
If this is indeed the case, then a broader deal may be difficult to arrange as the other members of the cartel will not want to miss out longer term.
However, helping the market Wednesday, was the news that Saudi Arabia increased its official selling prices for all crude grades to all regions for August following the failed talks.
The American Petroleum Institute is scheduled to release its weekly estimate of U.S. crude oil stockpiles later Wednesday, delayed a day because of Monday’s holiday. Last week saw stocks fall by 8.153 million barrels, continuing the run of draining supplies as demand increases as the U.S. economy reopens, particularly during the important driving season.
Production discipline has been holding up among the U.S. shale producers despite the rally in crude prices, but this must come under threat at some point, especially with OPEC+ unity breaking down. Investing.com