Oil Sheds OPEC-Induced Losses On Massive U.S. Stockpile Drawdown

Meanwhile, one analyst thinks the cartel's internal squabbling will soon cease: File Image/Pixabay

 

Initially, oil continued its losing streak on Thursday due to the fallout surrounding last week's collapse of the Organization of the Petroleum Exporting Countries' (OPEC) meeting to discuss a continuation of its output caps and their gradual easing.

However, prices rebounded due to a now-familiar indicator of a roaring economic recovery: according to the Energy Information Administration, U.S. stockpiles dropped 6.9 million barrels last week compared to expectations for a 4 million barrel drop, and gasoline stocks fell by 6.1 million barrels compared to projections of a 2.2 million-barrel drop.

As a result, Brent rose 69 cents to settle at $74.12 per barrel, and West Texas Intermediate rose 74 cents to settle at $72.94 per barrel.

But the OPEC debacle continue to weigh heavily on trading sentiment: Edward Moya, senior market analyst at OANDA, said, "The oil market is looking beyond the oil supply deficit in August and expecting the OPEC+ agreement to fall apart well before April 2022 when the agreement expires, as other member countries will ask for further concessions to secure more market share."

The OPEC talks fell apart when de facto leader Saudi Arabia refused demands from the United Arab Emirates to raise its output under the group's supply cut agreement; Russia is now trying to mediate between the two countries.

But while analysts fear that OPEC members could be tempted to turn on the taps full force in lieu of an agreement, PVM analysts pointed out in a note on Thursday that the Brent six-month spread remains in backwardation with the front-month price higher than later months: "This suggests that no immediate flooding of the market is anticipated."

Also, Stephen Schork, principal advisor at The Schork Group, noted that OPEC has been in its strongest position in years, and with regards to the internal squabbling "I think it's highly likely [that] it's going to resolve itself.....why mess around with, potentially, a price war?"

Schork also had comments to make regarding the scramble of the west to embrace green energy versus OPEC's operational strategy: "As western oil companies trip over themselves in the years ahead - and they're already doing it now - to decarbonize, OPEC's share of the global oil market is going to continue to grow."