(Bloomberg) — Oil slipped after U.S. fuel stockpiles expanded in the U.S. while OPEC+ was said to grow closer to an agreement to increase supply to the market.
Futures fell as much as 2.4% in New York on Wednesday. Both gasoline and distillate inventories rose last week, according to a U.S. government report. Meanwhile, Saudi Arabia and the United Arab Emirates were said to resolve the standoff that has prevented OPEC+ from satisfying growing demand for extra barrels. The proposal involves a higher output quota for the UAE, and the nation said OPEC+ talks are ongoing.
Demand “was continuing to increase and increase and increase, and now it’s taking a slight pause here,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “The bigger macro factor is these ongoing UAE negotiations,” which will invite more supply to the market, he added.
Economic recovery in countries like the U.S. and China has increased fuel consumption, propelling oil prices this year. Rising demand, especially during the peak summer travel season in the U.S., garnered warnings about a deepening supply deficit while OPEC+ was unable to agree on a production hike.
The proposal would need to be approved by all OPEC+ members before it can take effect. If the compromise is ratified at a new meeting, it could open the way to higher output, although some members have already locked in most of their supply volumes for August. The 23-nation coalition is aiming to restore supplies in installments of 400,000 barrels a day through to late 2022.
“So far it’s been proven that the OPEC+ agreement has been effective at stabilizing oil prices,” said Thummel.
The impasse introduced volatility in the market over the last week while near-term supply remained in question. In addition to gasoline, a boom in durable goods is driving demand for naphtha to make plastics as well as diesel to power deliveries.
Domestic crude supplies tumbled for the eighth straight week, according to the weekly report. Inventories at the nation’s largest storage hub in Cushing, Oklahoma, fell by 1.6 million barrels.
Still, the ongoing spread of the delta variant casts a shadow on the demand outlook for oil. Daily cases in Indonesia surpassed those in India, and Australia’s most populous city, Sydney, extended a lockdown for two more weeks. Cases in Malaysia and South Korea reached record highs.
“Trouble is brewing for the oil market,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. “Fears are mounting that rising Covid-19 Delta cases could delay a full economic recovery. This, in turn, poses a significant threat to oil demand growth in the near-to-medium-term.”
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