WASHINGTON (DTN) -- At the beginning of a new trading week, oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange fell sharply, sending the U.S. crude benchmark below $70 per barrel (bbl) after Organization of the Petroleum Exporting Countries in consortium with Russia-led partners agreed to gradually boost crude output through the end of 2022, while allowing the United Arab Emirates and four other members to the agreement to substantially raise their production baseline beginning in the second quarter next year, easing concerns over a tightening global oil market disposition.
The 19th OPEC and non-OPEC Ministerial Meeting concluded on July 18th with an agreement to pare back joint production cuts by 400,000 barrels per day (bpd) a month beginning in August until phasing out the remainder of 5.8 million bpd in supply adjustments through December 2022. The agreement has been extended until the end of 2022 from its previous expiration of April 2022. The alliance has been gradually unwinding their production cuts from historically high 9.7 million bpd last spring and summer to the current 5.8 million bpd.
Under the new deal, five members to the agreement will receive a boost to their production baseline but not until May 2022.
Earlier this month, United Arab Emirates blocked an agreement to raise output, arguing that its baseline is too low compared to other members, leaving the market guessing on the future of OPEC+ production rates. The compromise meets UAE demands halfway, while also raising other members' quotas. UAE will see their production baseline increase to 3.5 million bpd, up 332,000 bpd from the current 3.168 million but 300,000 bpd less from the country's requested 3.8 million bpd.
From May 2022, Saudi Arabia and Russia will have a new OPEC+ baseline of 11.5 million bpd, up 500,000 from the current 11 million bpd. Iraq and Kuwait's production baselines were also increased by 150,000 bpd each to 4.803 million bpd and 2.959 million bpd, respectively. Collectively, OPEC+ will upgrade their baseline from which it references their cuts by 1.63 million bpd.
"Consensus building is an art," Saudi Energy Minister Prince Abdelaziz bin Salman told reporters after the meeting. "The deal is evidence of the strong bonds between members and show that OPEC+ is here to stay."
UAE Energy Minister Suhail al-Mazrouei reassured investors that the Emirates remain committed to OPEC+ alliance, adding that "we will always work within this group to do our best to achieve market balance and help everyone."
Goldman Sachs analysts see the deal as constructive for a recovering oil market, with global jet fuel still lagging behind demand for other transportation fuels. The outlook for Transatlantic air travel continues to disappoint after several European countries slapped new travel restrictions last week that now extend to fully vaccinated travelers.
British medical officials announced on Friday that fully vaccinated travelers arriving from France must continue to quarantine because of the threat posed by the Beta variant. In France, President Emmanuel Macron beefed up restrictions for nonvaccinated citizens, prohibiting entrance to public transport, bars, and restaurants without a vaccination card or negative COVID test. Greece has also imposed similar restrictions for bars and theaters.
In early trading, the NYMEX August West Texas Intermediate contract fell $2.59 to $69.24 bbl ahead of expiration Tuesday afternoon, with the September contract trading at a $0.30 discount to the expiring contract. The international crude benchmark Brent contract for September delivery slumped $2.55 to $71.04 bbl. Both crude benchmarks declined more than 2.5% last week.
NYMEX August ULSD futures dropped 6.52 cents or more than 3% to $2.0481 gallon, and the front-month NYMEX RBOB contact tumbled 6.64 cents to $2.1872 gallon.
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