Oil Stabilizes After Saudi-UAE Compromise Removes Major Uncertainty

Oil prices steadied on Wednesday morning before the EIA inventory report after a reported compromise between Saudi Arabia and the UAE over baseline production levels removed a major uncertainty that was hanging over the market.

As of 9:58 a.m. EDT on Wednesday, WTI Crude was down 0.32 percent at $74.93 and Brent Crude prices were down 0.17 percent at $76.29.

Earlier in the day, oil prices were deeper in the red, as market participants started to fret about what low Chinese imports would mean for global oil demand.   

China’s crude oil imports fell to some 9.77 million barrels daily in June, down 2 percent on May and the lowest monthly level since the start of the year, according to customs data cited by Reuters on Tuesday.

Over the first half of the year, China imported 260.66 million tons of crude, down 3 percent on the first half of 2020. The first-half figure was boosted by increased imports by independent refiners, commonly called teapots.

Since the first quarter, however, Beijing has begun cracking down on the teapots, as production of fuels both at independent refiners and state-owned majors was rising faster than demand, undermining refining margins and creating a glut.

Oil prices fell on Tuesday after the Chinese oil import data, and continued sliding even after the American Petroleum Institute (API) on Tuesday reported a draw in crude oil inventories of 4.079 million barrels for the week ending July 9, bringing the total 2021 crude draw so far to 50.01 million barrels.

Wednesday’s trade also started in the red, but the Saudi-UAE compromise somewhat calmed the market. The compromise would mean that the alliance could move to add more oil supply from August through December this year to meet the rebound in global oil demand and prevent a super-tight market and very high oil prices that could slow economic and oil demand growth. The compromise also removes a key uncertainty hanging over the market about the future of the OPEC+ pact and the possibility of a new oil price war.