DTN Oil

WASHINGTON (DTN) -- Following the prior session's steep sell-off, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange reversed higher in early trade Wednesday after Saudi Arabia raised its official selling price for its crude to Asia, Northwest Europe and U.S. buyers, signaling no supply increases next month amid a standoff with United Arab Emirates on production quotas.

This week's price swings follow a new round of tensions among Organization of the Petroleum Exporting Countries and Russia-led partners, with oil traders grappling with uncertainty about future production levels from the 23-nation alliance. OPEC+ called off its scheduled meeting for Monday after UAE blocked the deal to gradually raise production by 400,000 barrels per day (bpd) each month until the end of the year, requesting its baseline to be substantially raised before it agrees to the increase and an extension of the agreement through December 2022. OPEC+'s current deal runs through April 2022, with the alliance holding back 5.7 million bpd in production.

Historically, OPEC meetings that fail to reach an agreement result in the price of oil falling, with traders anticipating a lack of restraint that leads to a flood of new supplies in the global oil market.

The inability by OPEC+ to reach consensus may not necessarily lead to a breakdown of talks, a scenario in which the group's producers' cast-off quotas and go full bore in ramping up their output. There simply appears to be no appetite for a market share war.

On Tuesday, Saudi Aramco raised its official selling price for Arab Light crude to Asian buyers by 80 cents per barrel (bbl) -- the biggest month-on-month increase since January. Buyers in the United States will see smaller increases next month, with prices rising between 20 cents and 40 cents bbl. Aramco has also raised rates for Northwest Europe by 80 cents bbl and for the Mediterranean region by 60 cents to 80 cents. The recent price move suggests the oil giant won't raise supplies next month even as it contends with discord with its regional rival -- the Abu Dhabi National Oil Company.

UAE has invested heavily in its oil industry, announcing in November 2020 plans to spend $122 billion to lift its crude production rate by about 1 million bpd by 2030, according to the Wall Street Journal.

Saudi Arabia, meanwhile, launched its Vision 2030 in 2016, an aggressive economic plan that moves the Saudis away from their dependence on oil. Those plans compete with the UAE.

Analysts following political and economic developments in the Middle East said it was only a matter of time before the rivalry would spill into OPEC decisions, with the friction expected to intensify. Still, Riyadh is expected to work out of public view with Abu Dhabi to find compromise. The longer the effort takes, the probability for OPEC+ to dissolve increases. OPEC+ did not set a date for a new meeting.

Separately, Tropical Storm Elsa is projected to make landfall across the north Florida Gulf Coast later this morning, with heavy rains expected in the next six to 12 hours over the Big Bend of Florida, followed by a weakening trend as it races off to the northeast along the U.S. East Coast into Thursday. Additional strengthening may occur Friday and Saturday as it reemerges over the Gulf Stream in the western Atlantic Ocean. Elsa is expected to become extratropical in the next 72 hours.

This year's hurricane season is expected to be above average, according to meteorologists, with as many as three to five major hurricanes forecast to hit the United States.

Hurricane season always brings a multitude of risks for gasoline demand, with heavy rains and flooding typically keeping drivers off the roads.

In early trading, NYMEX August RBOB futures advanced 2.81 cents to near $2.2574 gallon after plunging more than 7 cents prior session for a $2.2282 gallon settlement. August ULSD futures rallied 4.29 cents to $2.1476 gallon, reversing higher from $2.1049 gallon settlement. ICE September Brent futures gained $1.28 to $75.79 bbl and NYMEX August West Texas Intermediate futures advanced $1.28 to trade at $74.64 bbl.

Liubov Georges can be reached at liubov.georges@dtn.com