Oil Futures Chase Equities Higher as Traders Eye OPEC+ Talks

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Although all contracts posted modest losses this week, crude and refined products futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled Friday's session higher. The contracts were supported by rallying equities and a sagging U.S. Dollar Index as oil traders monitored progress on OPEC+ talks after a dispute between Saudi Arabia and the United Arab Emirates blocked the group's joint agreement to gradually increase production next month.

While the Joint Ministerial Monitoring Committee of OPEC+ has yet to decide on a new date for an official meeting, Russian and U.S. diplomats are reportedly working behind the scenes to bring both camps to a reasonable compromise. Last week, UAE blocked the group's deal to increase production by 400,000 barrels per day (bpd) through the end of the year, arguing that its baseline is outdated and needs to be substantially higher. The OPEC+ existing agreement, which runs through the end of 2022, calls on the group to bring back 5.7 million bpd of shut-in production. Russian officials have already indicated this week that no production increase would be unacceptable and several OPEC+ delegates have said they hoped for the new meeting to take place at some point next week.

So far, neither Saudi Arabia nor the UAE have backed down from their position, with the latter reportedly pursuing a new strategy to capture rising global demand after investing billions of dollars into expanding its production capacity. The Wall Street Journal reported this week, citing UAE officials, the aim is to generate revenue for diversification of the economy, both for investment in new energy and new revenue streams. "This is the time to maximize the value of the country's hydrocarbon resources, while they have value," said a person briefed on the UAE's strategy. There have been some mixed signals coming out of Saudi Arabia this week, with Riyadh hiking official selling price for its crude benchmark, signaling no price war with Abu-Dhabi, but raised import duties on oil and refined products from UAE, in a move that directly targets its economy.

Thursday's domestic inventory report, delayed by one day due to the Independence Day holiday, proved supportive for the oil complex, sending both crude benchmarks higher at the end of the week despite growing uncertainty over OPEC+ supplies. 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 bpd. Gasoline supplied to the U.S. market, a measure for demand, held above 9 million bpd for each, except one, week from May 14.

In outside markets, equity futures rallied and the U.S. dollar retreated to two-week low 92.090 on easing investor concerns over spreading COVID-19 variants and their impact on global growth. The yield on the benchmark 10-year Treasury rose early Friday to 1.354%, putting an end to an eight-day bond market rally. The reflation trade -- where assets benefiting from a strengthening economy and rising inflation outperform - has taken a beating this week amid indications that labor market and materials shortages continue to hammer growth in major economies. Domestically, the number of Americans seeking first-time unemployment benefits unexpectedly rose last week to 373,000 from an upwardly revised 371,000 in the prior week. This signals the labor market recovery from the COVID-19 pandemic continues to be choppy despite recent employment gains and rapid reopening of businesses.

On the session, NYMEX August West Texas Intermediates futures advanced $1.62 to settle at $74.56 barrel (bbl), and the international crude benchmark Brent contract for September delivery rallied $1.43 to $75.55 bbl. NYMEX August ULSD futures moved up 3.48 cents or 1.5% to $2.1552 gallon and the front-month RBOB futures rallied 3.68 cents for a $2.2920 a gallon settlement.

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

Liubov Georges