(Bloomberg) — Oil fell after OPEC+ stuck to a plan to boost crude oil production, with the cartel bet the global market could absorb the extra supply if demand improves and inventories are depleted.
West Texas Intermediate was 0.4% lower after closing little changed on Wednesday. After a quick midweek meeting, ministers from the Organization of the Petroleum Exporting Countries and its allies endorsed the 400,000 barrels-a-day increase planned for October. In the US, a government report showed a further contraction in national crude oil inventories.
Crude oil is up about 40% this year as consumption recovered from the impact of the coronavirus pandemic, although most of the gains came in the first half. Against that background, OPEC+ has gradually reinstated more of the supply it had suspended last year when the global health crisis erupted.
“With no surprise from OPEC+ producers about the supply, oil is taking a hit as concerns about the spread of the Covid delta variant, as well as new variants, continue and continue to weigh on global demand,” said Will Sungchil Yun, senior commodities. analyst at VI Investment Corp. “WTI will likely continue to trade in the $60s but will have a hard time staying above $70.”
Further evidence of a tightening market came on Wednesday when the US government reported that nationwide crude oil inventories fell by 7.2 million barrels last week to their lowest level in nearly two years. In addition, total oil products delivered, a measure of demand, reached the highest in data going back to 1990.
Traders also assessed progress in the US in restarting crude oil production and refining after the passage of Hurricane Ida, which ravaged Louisiana over the weekend. Most processors had escaped major damage and are expected to be back online within three weeks, according to IHS Markit.
Brent’s fast time spread was 58 cents a barrel in backwardation. That’s a bullish pattern, marked by near-dated prices higher than later dates compared to 89 cents a week ago.
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