Oil prices have calmed down after two days of losses amid supply uncertainty after the current production deal talks among major producers collapsed this week, which could lead to the cancellation of the deal.
Brent crude futures, which previously fell as low as $72.93, were down 2 cents to $73.45 a barrel. West Texas Intermediate (WTI) futures fell 10 cents, or 0.1%, to $72.10 a barrel.
Brent prices have fallen nearly 5% since Monday’s close as talks between the Organization of the Petroleum Exporting Countries and its allies, including Russia, under the group’s supply cut agreement collapsed. The de facto leader Saudi Arabia rejected the United Arab Emirates’ request to increase production.
The oil market expects the OPEC+ deal to collapse long before it expires in April 2022, as other member states are likely to seek concessions to gain more market share.
OPEC+ has restricted supply for more than a year since demand plummeted during the coronavirus pandemic. The group maintains a production cut of around 6 million barrels per day (bpd) and was expected to increase supply, but the three-day meetings have yet to resolve the conflict between the Saudis and the UAE.
According to sources, Russia is said to be trying to mediate between Saudi Arabia and the UAE to help reach an agreement to increase oil production.
Meanwhile, prices found some support from the massive drop in US oil inventories.
Oil inventories in the world’s largest oil user fell 8 million barrels in the week of July 2, according to two market sources from the American Petroleum Institute.
U.S. oil production declines this year are expected to lessen with the Energy Information Administration (EIA) saying on Wednesday that output will be 11.10 million bpd in 2021, down by 210,000 bpd from 2020, versus its previous forecast for a drop of 230,000 bpd.
However, Japan, the world’s fourth largest oil user and in the midst of a new wave of COVID-19 infections, has decided to declare a state of emergency for the Tokyo area by August 22nd. South Korea declaring its highest daily level of cases ever.
