On a Wednesday morning in July 2021, oil prices slipped in London as word spread that Saudi Arabia and the United Arab Emirates had found a way past their dispute over output. The quarrel between two Gulf producers had stalled talks on raising supply just as the world began to emerge from the pandemic's grip on demand. Their compromise, which lets the UAE lift its baseline output once the current pact lapses, offers a fragile settlement in a market still weighing recovery against restraint.
Oil Slides as Saudi Arabia and UAE Reach Output Deal Allowing UAE Production Boost
The first import contraction in China since 2013
Mark
Why did a deal between two countries move the oil price in a single morning?
Mimi
Because the collapse last week had left the whole OPEC+ output arrangement in doubt. A compromise suggests more UAE barrels are coming, and the curb deal can run through the end of 2022.
Mark
What exactly did the UAE get?
Mimi
A higher baseline, 3.65 million barrels per day, taking effect after the current pact expires in April 2022.
Luke
Worth noting that this comes from sources speaking to Reuters. The report doesn't quote either government confirming the terms.
Mark
So the price drop rests on an unconfirmed report?
Luke
Largely, yes. And the drop was modest, 0.75 percent for Brent, after an earlier fall of more than a dollar. I wouldn't call it a verdict.
Mimi
China's data also weighed. Imports fell 3 percent in the first half, the first contraction since 2013.
Luke
Eurasia Group attributes that to high prices squeezing refinery margins. That's one analyst's reading, though the source also lists quota shortages and maintenance.
Mark
And the inventory figures?
Luke
The 4.1 million barrel draw is from API data relayed by two market sources. It's not confirmed until the EIA publishes.
Mimi
If it holds, it's seven straight weeks of declines, which is why the market had some support.
Il Polso
- Brent slid below $76 after a sudden flare of tension between Saudi Arabia and the UAE over OPEC+ output.
- Talks on boosting production collapsed the week before, leaving the group's curbs and their extension in doubt.
- A compromise lets the UAE raise its baseline to 3.65 million barrels a day after April 2022, and sources say the curb deal can run through 2022.
- China's first import contraction since 2013 and a string of US inventory draws pull prices in opposite directions, so the market has yet to settle.
On a Wednesday morning in July 2021, oil prices slipped in London as word spread that Saudi Arabia and the United Arab Emirates had found a way past their dispute over output. The quarrel between two Gulf producers had stalled talks on raising supply just as the world began to emerge from the pandemic's grip on demand. Their compromise, which lets the UAE lift its baseline output once the current pact lapses, offers a fragile settlement in a market still weighing recovery against restraint.
On Wednesday morning in London, July 14, 2021, the price of oil was sliding. Brent crude fell 57 cents to $75.92 a barrel, and West Texas Intermediate dropped to $74.67, after an earlier dip of more than a dollar. The trigger was a Reuters report, citing sources, that Saudi Arabia and the United Arab Emirates had reached a compromise over the global supply deal.
The two Gulf producers had been at odds, and their disagreement made talks on raising production collapse the week before, just as demand was recovering from the pandemic. The settlement gives the UAE room to lift its baseline output to 3.65 million barrels per day once the current pact expires in April 2022. Saudi Arabia, the de facto leader of OPEC, had been pitted against one of its own members.
The deal also clears the way for OPEC+ to extend its output curbs through the end of 2022, an extension that had seemed uncertain after the failed talks.
Not every signal pointed down. China's crude imports fell 3 percent in the first half of the year, the first contraction since 2013, as quota shortages and refinery strain curbed buying. Yet American industry figures showed a 4.1 million barrel crude draw, and if the EIA confirms it, the decline would be the seventh straight week. The next readings will show whether the market stays tight or whether the extra UAE barrels begin to weigh on prices.
By mid-morning in London on Wednesday, July 14, 2021, the price of oil was sliding. At 1120 GMT, Brent crude stood at $75.92 a barrel, down 57 cents, or 0.75 percent, after having dropped by more than a dollar earlier in the session. West Texas Intermediate was off 58 cents, or 0.77 percent, at $74.67 a barrel.
The trigger was a Reuters report, citing sources, that Saudi Arabia and the United Arab Emirates had reached a compromise over a global supply deal. The arrangement will let the UAE boost its output. The two Gulf producers had been at odds, and their disagreement caused talks on raising production to collapse the previous week, just as global demand was recovering from the coronavirus pandemic.
The compromise carries a specific number. According to the source, the UAE's baseline production will rise to 3.65 million barrels per day once the current pact expires in April 2022. Saudi Arabia is the de facto leader of OPEC, and the dispute pitted it against one of the group's own members.
The sources also said the deal clears the way for OPEC members, Russia and other producers, a bloc known as OPEC+, to extend their agreement to curb output until the end of 2022. The collapse of last week's talks had left that extension in doubt.
Oil was also under pressure from demand-side data out of China. Its crude imports fell 3 percent from January to June compared with a year earlier, the first such contraction since 2013. Import quota shortages, refinery maintenance and rising global prices all curbed buying. Eurasia Group said in a note that imports were scaled back because surging crude prices had eroded refinery profit margins.
Other signals pointed the opposite way and lent support to the market. Two market sources, citing American Petroleum Institute figures, said US stockpiles of oil and gasoline fell last week. Crude inventories declined by 4.1 million barrels in the week ended July 9, they said.
If the Energy Information Administration confirms that draw when it releases its weekly data on Wednesday, it would mark a seventh consecutive week of inventory declines. The International Energy Agency has also said global withdrawals from storage in the third quarter were set to be the largest in at least a decade, pointing to early June stock draws in the United States, Europe and Japan.
The next things to watch are the EIA's numbers, which will show whether the American draw is confirmed, and whether China's import slowdown deepens. Both will help show whether the market remains as tight as the inventory figures suggest, or whether extra UAE barrels begin to weigh on prices.
Citazioni salienti
Imports were scaled back as surging prices for crude oil have eroded refinery profit margins.— Eurasia Group, in a note
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