Compromise on increased supply scared investors off and oil prices fell on Friday. It headed for its biggest weekly drop since May as OPEC is very likely to increase production to meet the potential recovery in demand as most countries recover from the pandemic.
September Brent crude was down 20 cents to $73.27 a barrel as of 0544 GMT and is heading for a 3% drop this week after two days of heavy declines. This is the biggest weekly drop since May.
August’s West Texas Intermediate (WTI) US crude fell 19 cents to $71.46 a barrel this week, posting its biggest weekly drop since March, down nearly 4% this week.
Arguments between Saudi Arabia and the United Arab Emirates over supply policy within the Organization of the Petroleum Exporting Countries and its allies including Russia, ended this month without a deal after the United Arab Emirates (UAE) objected to expanding its production policy beyond April 2022.
Saudi Arabia and the UAE reached a compromise this week, paving the way for OPEC+ to increase supply to the market.
All signs suggest that in this way OPEC+ is heading for a potential compromise that would allow the UAE to make fundamental adjustments. However, other producers will undoubtedly demand similar treatment, potentially prolonging negotiations until the August ministerial meeting.
World oil demand is expected to rise to pre-pandemic levels next year at around 100 million barrels per day (bpd), led by demand growth in the US, China and India, OPEC said on Thursday. OPEC production increased by 590,000 barrels per day in June to 26.03 million barrels per day.
Investors expect production to increase further in July and positive news about more supply from the group, even without a formal agreement.
The massive drop in crude inventories in the US didn’t add much to support prices, as gasoline inventories increased overall during the week that included the July 4th holiday, adding to concerns about demand.
