Oil fell the most since late May as a stronger dollar spurred a broad sell-off across the commodities complex while uncertainty over OPECs next move loomed large in the markets.
Futures in New York slid 2.4% on Tuesday. The U.S. dollar rose, making commodities priced in the currency less attractive to investors. The pullback in crude is a stark reversal from earlier in the session when futures soared to a six-year high amid an escalating fight between Saudi Arabia and the United Arab Emirates that has pushed OPEC+ into crisis and blocked a potential increase in oil supplies next month.
"Lots of uncertainty is lying ahead about the group's output policy in coming months and this will lead to increased volatility," said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London.
Oil prices have staged a massive rally this year as vaccination campaigns and economic reopenings have prompted a comeback in global fuel consumption. Tuesday's volatility underscores how uncertain the supply picture has become while the world's largest crude producers remain at a standstill over how to respond.
Discussions among the alliance dissolved acrimoniously as the United Arab Emirates blocked a proposal led by Saudi Arabia and Russia. While the situation is fluid and negotiations could be reactivated, the breakdown has damaged the group's image as a responsible steward of the market.
"Demand has been the primary signal for the oil markets for the last year or so," said Louise Dickson, oil markets analyst at Rystad Energy. "Now, we've started to reach this pivot where the supply uncertainty is driving the prices and this time, it's actually been stoked by OPEC+ itself."
Meanwhile, Biden administration officials have spoken with officials in Saudi Arabia and the United Arab Emirates in hopes of reaching an agreement to stem the rise in crude prices, White House press secretary Jen Psaki said Tuesday.
The U.S. hopes talks will lead to an agreement that "will promote access to affordable and reliable energy," Psaki said during a briefing at the White House. The impact of talks on gas prices in the U.S. is of interest to the administration, she said.
WTI hit the highest since November 2014, as the breakdown in talks left the market without extra supplies for next month. Tuesday's subsequent pullback in prices stems from concern or "skepticism that this is not the real oil price, and the last two or three days have reminded us that OPEC+ is holding this thing together," said Christyan Malek, head of oil and gas research at JPMorgan Chase & Co., in a Bloomberg television interview.
The 23-nation OPEC+ coalition had been on the brink of an agreement to restore production halted during the pandemic, in monthly increments of 400,000 barrels a day. That plan could still be ratified, or members may choose to informally leak barrels to eager consumers.
The lack of OPEC+ unity could invite new barrels to the market and spell bearish news for current prices, said Tom Finlon of Brownsville GTR LLC, a trading and logistics firm based in Houston.
"I think if you have 23 oil-producing countries that are party to an agreement, and that agreement isn't extended, and the price of crude is in the mid-70s, that's an engraved invitation to overproduce," said Finlon.
Oil and Dollars: Why the UAE Is Risking a Falling-Out With OPEC+
Traders will also look to crude and gasoline inventory data in the U.S. released by the industry-funded American Petroleum Institute on Wednesday for signals on how strong demand is in the midst of the summer driving season.
By : Syndication Washington Post, Bloomberg · Jill R. Shah
Source: The Nation Thailand
July 07, 2021
