Oil Suffers Double Whammy In Weakest Week Since March

Oil prices are likely to record their worst week since March under the double blow of additional OPEC supply coming to markets and unfavorable fuel inventory data from the United States.

What started as a relatively strong week for benchmarks turned into a slide on Wednesday after the Energy Information Administration reported yet another sizeable crude oil inventory draw with builds in both gasoline and middle distillates, at 1 million barrels and 3.7 million barrels, respectively.

Meanwhile, Saudi Arabia and the United Arab Emirates moved closer to a compromise that would allow OPEC+ to go ahead with increasing oil production in response to rising oil prices.

Prices wobbled in mid-week as initial reports that the Saudis and the Emiratis had reached a deal were refuted by official Emirati sources. Then they continued down as virtually all coverage on the topic suggested finalizing the deal and opening the taps was only a matter of time.

Normally, the addition of more OPEC+ barrels to global supply should be factored into prices and not make much of a splash, but this time there is yet another wave of new Covid-19 infections in some parts of the world, including Europe and the U.S., and that coverage is affecting trader sentiment.

The latest update on the Saudi-Emirati spat, from Energy Voice, said that it appeared the two have reached an agreement that will see the UAE’s oil production baseline increased from 3.17 million bpd to 3.65 million bpd that will allow it to increase production more than it would have otherwise.

This agreement, however, could present a risk, according to the head of oil and gas at Fitch.

“There’s a risk this could open the door to other countries to ask for their own increases,” Joseph Gatdula told Energy Voice earlier today.

What such a development would do to oil prices is pretty easy to predict. It would be up to the leaders of the OEPC+ pack to keep all its members in line to keep prices where they are.