Oil prices appear to have recorded their biggest weekly loss since March under the double blow of uncertainty surrounding the prospect of additional OPEC supply coming to markets and unfavourable fuel inventory data from the United States.
This is also exacerbated by the current resurgence of the Covid-19 pandemic, especially the delta variant.
The week which started strongly for the crude oil benchmarks started its plunge on Wednesday after the Energy Information Administration (EIA) 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.
The American WTI dropped by 0.6% at around $71 per barrel after closing at the lowest in a month on Thursday with the Brent crude dropping to around $73 per barrel.
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, although the details still remain unknown.
A stronger US dollar has also impacted on crude this week, making raw materials priced in the US currency less attractive to investors.
Prices wobbled in mid-week as initial reports that the Saudis and the Emiratis had reached a deal were refuted by official Emirate sources. Then the drop continued 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 United States, and that coverage is affecting trader sentiments.
What you should know
The emergence of the Covid-19 variant across the globe is threatening more lockdowns and travel restrictions casting a shadow over the outlook of energy demand.
The latest update on the Saudi-UAE dilemma, from Energy Voice, said that it appeared the 2 middle east countries 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.
However, the head of oil and gas at Fitch said that the agreement could present a risk as it could open the door for other countries to demand to have their own increases