WTI, Brent Futures Fade as UAE-OPEC Tensions Flare Up

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange slumped in early trade Thursday on chatter of escalating tensions between the United Arab Emirates and other members of Organization of the Petroleum Exporting Countries over the allocation of quotas prescribed under an OPEC+ production agreement reducing output by 7.7 million barrels per day (bpd), with some reports indicating the cartel's third largest producer is mulling leaving the agreement altogether.

Bloomberg News reported the UAE government requested reevaluation of its 2.59 million bpd target under the OPEC+ pact beginning Jan. 1, 2021, as it seeks to increase its budget revenues next year. UAE energy minister Suhail al-Mazrouei said the country pumped 2.693 million bpd or 103,000 bpd above its pledged quota last month while other producers that are part of the agreement, notably Iraq and Nigeria, made little progress on reducing their output. The reports came just days after Nigeria requested a reclassification of its light Abigail crude as gas condensate in a bid to increase its own production target.

The move is unusual for the country considered to be a close ally of Saudi Arabia -- the leading architect of the agreement and might signal growing discord between Abu Dhabi and Riyadh. The tensions first flared over the summer when UAE failed to reach its production target, triggering harsh language from Saudi oil minister Salman Abdulaziz.

The dissent follows a meeting by the Joint Ministerial Monitoring Committee earlier this week which ended without a recommendation on rolling over the current 7.7 million bpd in output cuts into the first quarter of next year or longer -- a step widely anticipated by the market. The current agreement calls for easing the output reduction by 2 million bpd that Saudi Arabia and other OPEC members want to delay. OPEC+ ministers meet on Nov. 30 - Dec. 1.

The reports come against a backdrop of slowing demand amid surging coronavirus infections in major global economies, with the United States breaching a milestone 250,000 deaths related to COVID-19 on Wednesday. Governments in nearly all states have tightened quarantine restrictions and announced partial reclosure of contact-sensitive businesses. On Wednesday, New York City Mayor Bill de Blasio announced the nation's largest public school system would move to remote learning only for the winter-spring semester.

This doesn't bode well for fuel demand in the world's largest economy. Energy Information Administration reported Wednesday gasoline supplied to the U.S. market fell 504,000 bpd in the most recent week to 8.258 million barrels (bbl), which is more than 10% lower than a year ago. Gasoline inventories jumped 2.6 million bbl from the previous week to 228 million bbl, while remaining 4% above the five-year average.

Wednesday's government data also showed a 766,024 million bbl increase in U.S. commercial crude oil supplies and 1.2 million bbl build in Cushing stocks, the delivery point for the WTI contract.

In early trading, NYMEX December WTI futures fell 25 cents to near $41.55 bbl ahead of expiration Friday afternoon, with January futures holding a 19 cents premium to the expiring contract. ICE January Brent futures eased to $44.25 bbl. NYMEX December ULSD futures firmed 0.5 cents to near $1.2690 gallon, while December RBOB futures eased 0.7 cents to near $1.1555 gallon.

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

Liubov Georges