Oil Plunges Again Despite Unlikelihood Of Calamity Following Stalled OPEC Talks

Oil may be supported in the near-term by another substantial U.S. stock draw: File Iamge/Pixabay

Skittish crude traders on Wednesday maintained their sell-off of the commodity in the wake of the Organization of the Petroleum Exporting Countries (OPEC) abandoning talks to keep its supply constraints intact.

The losses occurred despite the growing notion that OPEC members may not be tempted after all to fully open their taps, thus destabilizing global supply and demand: Eurasia Group stated in a note, "Despite growing risks of an OPEC+ collapse, the leadership in Riyadh and Abu Dhabi will most likely attempt to avert such an outcome."

Following the previous session's steep drop, Brent on Wednesday settled at $73.43 per barrel, falling $1.10, or 1.5 percent; West Texas Intermediate settled at $72.20 per barrel, shedding $1.17 or 1.6 percent.

The OPEC talks came to an abrupt halt after the United Arab Emirates opposed a proposal to raise production by about 2 million barrels per day (bpd) from August to December and to extend the remaining output reductions to the end of next year, in order to support the global economy as it continues to recover from the effects of the pandemic.

Phil Flynn, senior market analyst at Price Futures Group Inc., downplayed the notion of the OPEC collapse leading to calamity: "Some people are fearing a production war, but I think most people think that's unlikely.

"It is possible the UAE could leave OPEC and just do it's own thing, and if that happens, then it would be a question of competition for market share."

While Russia is  said to now be leading the charge in trying to close divisions between the UAE and OPEC, oil may find support in what is shaping up to be yet another massive U.S. stock draw: 8 million barrels for the week ended July 2, according to the American Petroleum Institute, compared to expectations of a reduction half that size.

The API also reported gasoline supplies fell 2.74 million barrels last week and distillate inventories rose 1.09 million barrels.

Another sign that cooler heads tend to prevail despite the drama in trading circles: U.S. shale firms are reluctant to pump or hedge more even though oil's remarkable recovery poses a significant temptation to do so.

Wood Mackenzie on Wednesday said producers were more likely to keep their remaining 2021 production unhedged, sell at the current prices, and focus their hedges on 2022; they also have pledged to keep production flat, boosting investor returns rather than pumping more crude.