Oil rally grinds to a halt after WTI futures retreats from 6-yr high
US WTI futures retreated after having reached a six-year high on Tuesday morning. The OPEC standoff has been the latest in a string of bullish events that has sent crude prices up by almost 60 percent since the beginning of the year.
Brent, the international benchmark under which two thirds of the world’s oil is traded, rose 0.7 per cent to $77.77 a barrel at 11.40am, the highest since October 201 . West Texas Intermediate, the main North American gauge, was up more than 2.32 per cent at $76.90 a barrel, the highest level since November 2014.
The failure by OPEC to reach an agreement on future production increases leaves the market undersupplied, with the planned return of 2 million barrels per day hanging in the balance.
WTI has gained about 5 per cent this year while Brent is up by about 50 per cent. Both benchmarks rallied in the first half of the year on the back of rapid vaccination campaigns in developed countries and the reopening of the US, Chinese and European economies.
The easing of Covid-19 movement restrictions has also given oil prices a boost as demand for energy continues to rise.
“Crude oil prices reached their highest levels since the second half of 201 following the failure of OPEC to reach a production agreement,” said UBS strategist Giovanni Staunovo.
“With the oil market already in deficit and supply growth lagging oil demand growth, the crude market will likely tighten further this summer.”
UBS raised its estimates for both Brent and WTI by $2 a barrel to $ 0 and $77, respectively, by September.
OPEC postponed a much-delayed meeting scheduled for Monday night in order to consider the UAE’s position on the baseline used to calculate its production quota.
The UAE, Opec’s third-biggest producer, has urged the exporters’ group to “decouple” output restrictions from plans to extend its existing agreement beyond April 2022.
According to estimates, the discrepancy between the baseline used to calculate the UAE’s quota under OPEC and its current production capacity is 1 per cent – the highest among the producers within the group.
“No announcement has been made for a next meeting, leaving the market hanging as to what happens to oil production from August onwards,” said Daniel Richards, Mena economist at Dubai-based Emirates NBD.
“At present, the default option would appear to be that output remains at the same level from the end of July, leaving markets considerably more undersupplied than had been expecting.”