Oil Continues To Slide As OPEC Stays Silent

Oil prices fell for a third day in a row early on Thursday as uncertainty coming from the OPEC+ deadlock and fears of COVID variants spreading fast weighed on the market.

As of 10:44 a.m. EDT on Thursday, before the weekly EIA inventory report, WTI Crude was down 0.69 percent at $71.70 and Brent Crude traded down 0.39 percent at $73.11. Both benchmarks have now lost $3-4 per barrel since Monday close, when they hit multi-year highs.

The market largely shrugged off a seventh straight weekly inventory draw reported by the American Petroleum Institute (API) on Wednesday. API estimates that U.S. crude oil inventories fell by 7.983 million barrels for the week ending July 2.

Participants focused on the continued discord between the United Arab Emirates (UAE) and Saudi Arabia, which threatens to unravel the entire production pact that has been in place since April 2020.

“A prolonged period without a deal could drive an increased amount of noncompliance, and the market worries countries like the UAE may adopt a new strategy of selling as much crude as possible,” Saxo Bank strategists said today.

The odds of a new pump-at-will price war may have risen in recent days, but analysts continue to believe this is not the base-case scenario for the outcome of the OPEC+ spat.

“Fundamentally, it is difficult to justify Brent trading above US$75/bbl for a sustained period and we believe OPEC+ will come to a compromise to gradually increase output,” Warren Patterson, Head of Commodities Strategy at ING, said in a note on Thursday.

The OPEC uncertainty combined with resurgence in COVID cases in Asia to weigh down on the market on Thursday. Tokyo declared a state of emergency that will include the period of the Olympics, and officials are now considering whether to allow spectators at all. In Southeast Asia, Indonesia is registering record COVID cases, while Thailand’s plan to fully re-open to foreign tourists in three months were thrown in disarray by surging cases.

In addition, as Saxo Bank notes, oil is falling this week in “a summer holiday market where reduced liquidity drives increased volatility, especially now given the current disarray within OPEC+.”