Oil prices started the London trading session today bullish as data showed a decline in U.S. inventories but looks to close the week bearish as a result of uncertainty over global supplies after an OPEC+ impasse.
Brent crude oil futures is bullish by 0.90%, currently trading at $74.80 a barrel while the U.S oil, West Texas Intermediate (WTI) futures is also bullish by 1.11%, at $73.75 a barrel, as of the time of writing this report. However, both the Brent and U.S oil are on track to post a loss for the week of nearly 2%, as a result of the collapse of output talks between the Organization of the Petroleum Exporting Countries and its allies including Russia (OPEC+).
The gain in the market today is as a result of data released by the U.S. Energy Information Administration on Thursday showing that crude and gasoline stocks fell and gasoline demand reached its highest since 2019, signalling increasing strength in the economy.
What they are saying
OPEC+ sources stated on Wednesday that Russia was trying to mediate in an effort to strike a deal to raise output. The White House also stated that the United States had high-level conversations with officials in Saudi Arabia and the UAE.
Stephen Brennock of oil broker PVM stated, “A bullish EIA stock report helped the oil market rebound into the black. Clearly, U.S. oil markets are tight. However, the only way to prevent further losses is for the threat of an OPEC+ price war to be contained.”
What this means
Gains in oil prices were stopped by worries that members of the OPEC+ group could be tempted to abandon output limits, allowing each member to pump at maximum capacity, a situation that happened in April 2020, brought about by the COVID-19 pandemic. The breakdown in talks because of an impasse between major producers Saudi Arabia and the United Arab Emirates may see that situation occur again as no news about the progress of the talks has been released.
Another reason affecting the progress of oil prices is the global spread of the Delta coronavirus variant. Investors are worried that this variant could stall a worldwide economic recovery and ultimately weigh in on oil prices.
Investors attention is set on the OPEC+ members, expecting a statement as to if the two countries have found a common ground and also to know what direction the group will take going forward.
