Oil Steady as Investors Track Saudi-UAE Deadlock Over Supplies
Oil was steady above $73 a barrel as investors tracked the high-stakes impasse between Saudi Arabia and the United Arab Emirates that’s stymied efforts to raise OPEC+ production amid a resurgence in demand.
West Texas Intermediate was little changed after closing down 2.4% on Tuesday as a stronger dollar spurred a sell-off across commodities. Before that drop, most-active prices had hit the highest since 2014 on concern the dispute at the cartel would stop more crude from being restored to the market. White House Press Secretary Jen Psaki said U.S. officials have been speaking to both sides.
Saudi Arabia raised prices for buyers as the dispute played out. In Asia, Saudi Aramco increased the official selling price for Arab Light by 80 cents a barrel to $2.70 above the regional benchmark. That’s the biggest month-on-month gain since January, and suggests the oil giant won’t boost supply next month.
Oil has soared in 2021 as the rollout of coronavirus vaccines permits major economies to reopen, spurring a revival in global consumption. While the Organization of Petroleum Exporting Countries and its allies have returned some of the production they took offline at the height of the pandemic, they can’t now agree on a way forward. Unless a compromise is forged, that means OPEC+ supply may not increase in August, further tightening the market.
It looks “from the comments coming from the key OPEC members, that they will likely reach agreement,” said Wayne Gordon, a strategist at UBS Wealth Management. Saudi Arabia, as well as OPEC+ partner Russia, “seem pretty comfortable in keeping things the way they were,” he said.
JPMorgan Chase & Co. is among banks that anticipates a deal will be found. OPEC+ is expected to eventually agree in the coming weeks to boost production by 400,000 barrels a day each month for the rest of 2021, it said in a note.
At the same time, the widening fault lines between the two Gulf allies may induce cartel members to pump more unilaterally, risking a free-for-all that could crash prices. There is potential for a price war, but all involved will try to avoid that, according to ING Group NV.
American officials are “encouraged” by OPEC talks, and have spoken with counterparts in Saudi Arabia and the UAE in hopes of reaching an agreement to stem the rise in oil, the White House’s Psaki said at a briefing. The impact on gasoline prices in the U.S. is of interest to the administration, she said.
The crude market’s pricing patterns continue to point to tightness. Brent’s prompt time spread was 98 cents a barrel in backwardation, a bullish pattern. That compares with 51 cents a barrel a week earlier.