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Oil Plunges 2% as Saudi, UAE Yet to Reach Supply Deal

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By Adedapo Adesanya

Oil prices dropped more than 2 per cent on Wednesday as reports said Saudi Arabia and the United Arab Emirates (UAE) were yet to reach a compromise that should unlock a deal to boost global oil supplies as the world recovers from the coronavirus pandemic.

The Brent crude dropped 2.5 per cent or $1.93 to trade at $74.56 per barrel while the West Texas Intermediate (WTI) lost 2.8 per cent or $2.12 to settle at $73.13 per barrel.

The premise came as Saudi Arabia and the UAE had reportedly agreed for the latter to increase its baseline production in an output deal that members of the Organisation of the Petroleum Exporting Countries (OPEC) and allies comprising Russia and other producers, a group known as OPEC+, reached last year, a report from Reuters said.

The agreement should pave the way for OPEC+ members to extend a deal to curb output until the end of 2022, the sources added.

However, the UAE energy ministry said in a statement that no deal with OPEC+ on its baseline has been reached, stating that deliberations were continuing.

“Deliberations and consultations between concerned parties are ongoing,” the statement said.

Disagreement between OPEC’s de facto leader Saudi Arabia and the UAE led to a collapse in talks last week on boosting production to help oil prices.

The market failed to consider bullish news from the US Energy Information Administration (EIA) which said crude stockpiles declined more than expected.

According to the weekly report, crude inventories dropped for the eighth consecutive draw, as it reported a crude oil inventory draw of 7.9 million barrels for the week to July 9.

Last week’s inventory decline compared with a draw of 6.9 million barrels for the previous week.

This is coming after the American Petroleum Institute (API) on Tuesday reported a draw in crude oil inventories of 8.537 million barrels for the week ending July 11.

In its latest monthly report, the International Energy Agency (IEA) said global withdrawals from storage in the third quarter were set to be the most in at least a decade. This is as a result of early June inventories drop in the United States, Europe, and Japan.

The market is also shaky from Chinese economic data which showed that crude imports in the largest importing country dropped by 3 per cent from January to June compared with a year earlier, the first such contraction in over eight years.

The market is also facing rising worry about the spread of the latest coronavirus variant and reports of newly emerging ones, this can further dampen the oil market.

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