Oil price drops below $70 a barrel after OPEC+ hits a production deal productie

Crude oil prices plummeted to start the week after the Organization of the Petroleum Exporting Countries and its allies, including Russia, reached a deal to boost oil production amid rising demand.

West Texas Intermediate Crude Oil for August Delivery CL00,
-3.79%

CLQ21,
-3.72%
fell nearly 3.7% to $69.16 a barrel on the New York Mercantile Exchange. The US benchmark finished 3.7% last week, the largest weekly decline for a front-month contract since the week ending March 26, according to Dow Jones Market Data. Crude finished Friday’s session at $70.41.

September Brent raw BRN00,
-3.38%

BRNU21,
-3.38%,
the global benchmark, fell 3% to $71.36 a barrel. The contract saw its largest weekly drop since last May, down 2.6, ending Friday’s session at $73.59.

The oil cartel and its allies announced on Sunday that production levels will increase by 400,000 barrels per day every month from August, eventually unraveling the thresholds put in place last year in response to the COVID-19 pandemic. An agreement had been held up by a weeks-long standoff between Saudi Arabia and the United Arab Emirates over how much the latter should be allowed to pump.

A sticking point for the UAE was that they insisted on raising the baseline used to determine the output level. OPEC+ agreed on Sunday to lift the baselines for the UAE and several other countries that were raised in May 2022.

“The deal, which was reached during an OPEC+ video conference over the weekend, is actually better for the oil market than the obscure situation of the past two weeks as it restores customer confidence,” said Eugen Weinberg, head of commodity research at Commerzbank. in a statement. a note to customers.

A gradual monthly increase of 400,000 barrels per day will bring production to 2 million barrels per day by the end of the year, although investors should also consider the higher baselines given to the UAE, Iraq, Kuwait, Saudi Arabia and Russia, he said. “In total, the base needs to be increased by more than 1.6 million barrels per day, meaning more OPEC+ crude will be available in the longer term,” Weinberg said.

“This could weigh on oil prices next year as it is unclear whether the market will need this additional oil,” he added, but expects disciplined adherence to the plan to keep prices stable in the coming months.

Goldman Sachs strategists said they don’t think the OPEC+ deal is bearish on prices, “with supply increasingly becoming the source of the bullish impulse and evidence of non-OPEC supply shortages likely in the coming months (including shale discipline). in the upcoming earnings season) ).”

A team led by Damien Courvalin said oil prices are likely to fluctuate in the coming weeks amid concerns about the delta variant of COVID-19 and “the slower speed of supply developments compared to recent mobility gains.” Concerns about rising cases due to the delta variant weighed on equity markets early in the week.

“With most of our projected increases in demand in the summer already achieved and with headwinds increasing from the delta-COVID variant, we believe the catalyst for the next leg of higher prices is shifting from demand to the supply side, with upside risks to our price forecasts. in the coming months as a result,” said Goldman strategists.

The energy sector was generally largely under pressure, with August RBQ21 for gasoline,
-2.95%
Down 2.3% to $2.20 a gallon and heating oil HOQ21 in August,
-3.09%
decreased by 2.4% to $2.06 per gallon. Against the trend, August natural gas NGQ21,
+2.42%
rose 1.44% to $3.72 per million British thermal units.

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