James Hyerczyk
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WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished higher last week, but after an upbeat performance at the start, the bullishness faded late in the week as OPEC+ failed to reach a new output agreement as expected on July 1.

Both futures contracts were supported throughout the week on expectations of increasing oil demand as economies in the U.S. and Europe continued to reopen. However, new concerns over fuel demand in parts of Asia arose as the highly contagious COVID-19 Delta variant surged.

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Last week, September WTI crude oil futures settled at $74.36, up $1.03 or +1.40% and September Brent crude oil closed at $76.17, up $0.79 or +1.04%.

The markets were also supported by another drawdown in weekly crude oil inventories. Gasoline inventories also fell in the U.S. amid increased transportation and travel. In other news, U.S. energy firms added oil and natural gas rigs for a third time in four weeks. The oil and gas rig count, and early indicator of future output, rose by 5 to 475 in the week to July 2, its highest since April 2020, energy services firm Baker Hughes Co. said in its closely followed report on Friday.

Weekly Forecast

WTI and Brent crude oil moved to multi-year highs early last week even as reports surfaced that OPEC+ would increase output by 2 million barrels per day starting in August. This was because bullish investors had expected a higher number.

Nonetheless, gains were capped after the United Arab Emirates blocked a deal, which could delay plans to pump more oil through the end of the year. By the end of the week, talks between oil ministers had resumed.

This is the issue that could determine the direction of the markets this week. OPEC+ is meeting again after UAE opposed the proposals, saying it wanted its quota to be higher, sources said. The long rally in prices could be undermined if OPEC+ nations go their separate ways and add to supply as they see it.

There are some fears in the market that an escalation of the stalemate could lead to the demise of OPEC+. If this occurs, prices could plunge, very similar to when Russia “left” OPEC+ in March 2020.

“We’re in wait-and-see mode here with OPEC,” said John Kilduff, partner at Again Capital in New York. “We’ll have to see where the Saudis want to come out in terms of holding the group together.”

Look for volatility throughout the week especially if Saudi Arabia and the UAE continue to knock heads over oil output levels.

For a look at all of today’s economic events, check out our economic calendar.
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