DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled lower for the third consecutive session on Wednesday amid a deepening political rift between Saudi Arabia and the United Arab Emirates that has held up an agreement among the 23-nation OPEC+ alliance on production quotas for August, potentially undermining their efforts at managing the global oil market.

On the session, NYMEX August West Texas Intermediate futures plunged more than $1 to $72.20 barrel (bbl), with losses accelerating after settlement, and the international crude benchmark Brent contract for September delivery declined to $73.43 bbl after trading as high as $75.99 earlier in the session. NYMEX August RBOB futures declined 2.22 cents to settle at $2.2060 gallon, and August ULSD futures fell 1.58 cents for a $2.0891 gallon settlement.

In the latest sign of rapidly deteriorating relations with Abu Dhabi, Saudi Arabia beefed up import duties on all cargoes originated from Gulf Cooperation Council countries, including the UAE, Qatar, Oman, Kuwait, and Bahrain. The new customs regime largely targets the UAE economy and sales from its major bunkering hub at Fujairah.

Abu Dhabi National Oil Company has invested heavily in expanding storage capacity at the port, developing underground caverns that could hold up to 42 million bbl of crude and petroleum products. Currently there is more than 10 million bbl of crude and oil products storage capacity at Fujairah, most of which is for oil products.

Saudi's latest move highlights the deepening rift between the two regional rivals, with both competing for international investments and resource development. UAE announced a plan in November 2020 to invest $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 directly 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.

On Monday, OPEC+ called off a fourth round of talks aimed at reaching an agreement on production cuts for August. Earlier reports indicated the rest of the 23-nation alliance backed a gradual increase of output levels though the end of the year, while UAE requested to raise its production baseline before it agrees to an extension. Russia Energy Minister Alexander Novak said no production increase next month would be unacceptable for Moscow, highlighting how the inability to reach an accord can quickly undermine the OPEC+ alliance.

Separately, oil traders await the release of weekly inventory report from the American Petroleum Institute, delayed one day due to Monday's U.S. Independence Day holiday. Analysts estimate U.S. crude oil stockpiles to have decreased by 3.9 million bbl from the previous week, with projections ranging from declines of 2.5 million bbl to 5.2 million bbl. Gasoline stockpiles are expected to have fallen 2.1 million bbl from the previous week, while distillate inventories are seen to have increased by 300,000 bbl. Refinery run rates likely rose by 0.4% from the prior week to 93.3% of capacity.

Further weighing on the complex, Tropical Storm Elsa made landfall near Tampa, Florida, on Wednesday, moving north through the Southeast U.S. DTN Weather expects Elsa to weaken to a tropical depression as it tracks across Georgia and the Carolinas on Wednesday into Thursday. Some modest strengthening is possible as Elsa pushes off the Virginia coast, moving northeast off the Atlantic coastline on Friday, with the storm expected to pass near southern New England. Rainfall will become the primary threat, with totals of 2 to 4 inches expected to impact much of the Atlantic Seaboard. Heavy rainfall could affect driving demand along the heavily populated East Coast.

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