The news, emerged in the late afternoon on
Wednesday, which said that the UAE and Saudi Arabia had reached a deal to get
past the OPEC+ impasse has already done the damage to the crude oil markets.
The fall was so significant that even the
encouraging report from the EIA, showing a drop of 8 million barrels from the
US crude oil inventories for the weekly period ending July 9, could not reverse
the trend.
It was, in fact, twice as big as what was predicted
by the API, American Petroleum Institute; the forecast by the latter was close
to 4 million barrels for the same period.
With a fall of this magnitude in the US inventories,
usually, gloomy news gets drowned out: however, it did not do the trick this
time; as of 14:00 GMT on Thursday, the fall in price of the WTI and Brent were
1.42% and 1.35% respectively.
The energy minister of the UAE, meanwhile, brushed aside the reported agreement between
the UAE and Saudi Arabia. That means there is no possibility of the markets
having an additional 400,000 barrels per day from August to December this year,
because it has not been agreed upon by the members of the OPEC+.
It is true that the UAE and Saudi Arabia cannot come
up with bilateral deals when it comes to the production of crude oil; it must
be the unanimous voice of the OPEC+ cartel, despite the two members in question
being the most influential Middle Eastern players.
The fact that they at least talk to each other in
order to resolving the issue is a step in the right direction, though.
With the emergence of the new Delta variant of the
Coronavirus in every corner of the planet, the OPEC+ may be under renewed
pressure from its Asian customers in particular and the West in general, demanding
an increased output in order to stabilize the prices.
If the OPEC+ tries to cash in on the situation by
focussing only on filling in their coffers, the move may backfire; the world
hasn’t emerged victorious from its collective battle against the pandemic yet,
despite the relative success of the global vaccine drive.
The other major concern that rattled the market is
the dramatic fall of China’s growth. Citing various reports, I said a few days
ago that China’s GDP growth has come down to just over 8% in the second
quarter, dropping from an impressive 18.3% during the first quarter.
China released its GDP figures today and it was a
significant drop of almost 8%.
It emerged at the beginning of this week, China’s
crude oil imports have fallen for months this year. The drop in the GDP is
clearly in line with the fall in crude oil imports.
All in all, the crude oil analysts are extremely cautious
about a catalogue of factors in gauging the direction in which the markets are
going to head.
OPEC+ impasse and the possibility of the revival of
the JCPOA, 2015 Iranian nuclear deal, are going to at the top of their current list
concerns.
