US Weekly Crude Data: How High Can Crude Go?
There has been a delay in the weekly crude oil data by a day, due to the 4th of July holiday in America.
Regardless, that doesn’t mean that there hasn’t been a lot of activity in the oil sphere.
The week started with OPEC+ failing to reach an agreement on what to do with oil production. This helped black gold to push above $77/bbl, the highest WTI has been since late 2014.
Previously, analysts thought that crude might have hit a top. They attributed this to a stronger dollar dragging crude lower, particularly after unexpectedly hawkish comments from the Fed.
However, experts quickly eclipsed this, as it became clear that there are significant differences within OPEC.
So, what is the impact of those differences?
Where do we go from here?
Traditionally, we regarded the UAE and Saudi Arabia as allies within the oil cartel.
This is why some analysts were surprised that the small country stubbornly refused to budge on production quota increases.
Specifically, Saudi Arabia wanted to gradually increase production in line with demand, to keep the price from accelerating. In fact, the initial proposal of a 0.5M bbl/d per month increase was trimmed down to 0.4M bbl/d.
That said, the meeting eventually ended without an agreement on a deal. Even so, there is still potential to resolve the issues in a future meeting.
However, the underlying problem wasn’t about increasing current production. Indeed, the UAE’s complaint is that their production threshold was too low, as they expect cuts to continue throughout the next year.
Why it’s significant
Although crude rose on the news that a production hike was not agreed to, the underlying issue concerns oil prices in the long term. The current disagreement about the allocation of cuts could potentially lead to fighting over market share. This could produce a disastrous outcome.
We must remember that last year’s spring price crash was because of the Saudis and Russians fighting over market share.
Of course, circumstances are very different now.
One of the reasons that OPEC had to push for market share, was to compete with increasing production in the US. Despite this, experts anticipate a diminished American production, at least for the next four years, thus there is no urgency for market share.
Still, OPEC’s inability to adjust market quotas does not necessarily mean that producers may simply increase production out of frustration. This is especially considering current crude prices are some of the highest in years.
The world’s largest consumer will be giving out key data on their oil situation in the next couple of days. The data will also account for the increased demand, due to the long weekend.
Nonetheless, inventory losses have almost consistently been higher than analysts’ forecasts. This is because a combination of better than expected demand, compared with increased prices, leads to wholesalers’ disinterest in holding inventory.
If inventory diminishes in a similar range as last week, it could give oil some further impetus to move higher.