DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange pushed higher for the second session on Friday, although all contracts are on course to close out a volatile week with losses of around 2% triggered by the deepening political rift between Saudi Arabia and the United Arab Emirates that has roadblocked a production agreement among 23-nation OPEC+ alliance on future supply levels, with speculation rising that Russia could bring the key producers back to negotiating table next week.

Near 8:45 a.m. ET, NYMEX August West Texas Intermediates futures advanced $0.90 to trade near $74 per barrel (bbl), and the international crude benchmark Brent contract for September delivery gained $0.79 to $74.93 bbl. NYMEX August ULSD futures moved up 1.74 cents to $2.1384 gallon and the front-month RBOB futures rallied 2.50 cents to $2.2795 gallon. Friday's move higher is underpinned by bullish factors in the market, including falling U.S. crude oil inventories, a weakening U.S. Dollar Index and expectations that the OPEC+ dispute will find some resolution next week.

U.S. Energy Information Administration data Thursday showed domestic crude supplies fell sharply for the seventh consecutive week through July 2, leaving inventories more than 7% below the five-year average and at their lowest since late February 2020. U.S. gasoline demand, meanwhile, picked up some speed heading into summer driving season, with implied weekly consumption surging to above 10 million barrel per day (bpd). Gasoline supplied to the U.S. market, a measure for demand, held above 9 million bpd for each but one week from May 14.

Additionally, the U.S. Dollar Index lost some ground in overnight trading after hitting a 3-month high 92.85 on Wednesday, further supporting the oil complex. The greenback has an inverse relationship to the price of oil. The U.S. dollar weakness follows a somewhat disappointing reading on jobless claims for the week ended July 3, with the number of Americans seeking unemployment benefits for the first time unexpectedly rising to 373,000 from an upwardly revised 371,000 in the prior week. This signals that the labor market recovery from the COVID-19 pandemic continues to be choppy despite recent employment gains and rapid re-opening of businesses. Some analysts suggest that fears of contracting the Delta variant of coronavirus might have kept employees at home. There was a record 9.2 million job openings at the end of May and 9.5 million people officially unemployed in June.

According to Centers of Disease Control and Prevention data, the Delta variant of the coronavirus has become the dominant strain in the United States, accounting for more than 51% of COVID-19 infections nationwide. In some parts of the country, the delta strain accounts for more than 80% of new infections, including some Midwestern states such as Missouri, Kansas and Iowa. The variant, also known as B.1.617.2, was first detected in India and is spreading quickly across the globe, undermining efforts to re-open international travel. In the European Union, a growing number of countries are tightening travel restrictions in line with recommendations from European Center of Disease Prevention and Control. "Based on available scientific evidence, the Delta variant is 60% more transmissible than other circulating variants, and we estimate that by the end of August, it will represent 90% of all SARS-CoV-2 viruses circulating in the European Union," ECDC's Director Andrea Ammon said.

Against this backdrop, OPEC+ still have not reached an agreement on production quotas for August, with the rift between Saudi Arabia and United Arab Emirates widening each day. A prolonged stalemate between the two OPEC producers raises the risk of other members within the alliance abandoning their quotas. OPEC+ in its existing deal, which runs through April 2022, is withholding about 5.7 million bpd in production. Russian energy minister Alexander Novak is reportedly working behind the scenes to bring both parties back to the negotiating table, with some reports indicating the new date for the meeting might be set for next week. Situation remains fluid.

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