OIL FUTURES: Crude rallies after smaller-than-expected OPEC+ output increase

Crude futures settled higher July 1 after a smaller-than-expected bump in OPEC+ crude output, even as the group's monitoring committee adjourned without a production recommendation.

NYMEX August WTI settled $1.76 higher at $75.23/b and ICE September Brent settled $1.22 higher at $75.84/b.

OPEC and its allies do not yet have a plan for how much crude to pump in the months ahead, after a fractious monitoring committee meeting ended July 1 with no recommendation.

A tentative deal for the 23-country OPEC+ alliance to increase crude output by 400,000 b/d monthly through December was left hanging in the balance, mainly by resistance from the UAE, according to sources involved in the talks.

Kazakhstan and Iraq had also expressed reluctance to go along with the plan, the sources added.

The full OPEC+ ministerial meeting that was to have started after the monitoring committee session was bumped to July 2.

NYMEX August RBOB settled 2.58 cents higher at $2.2676/gal and August ULSD moved 2.79 cents higher to settle at $2.1562/gal.

Ahead of the meeting most market watchers had expected a 500,000-1 million b/d production increase for August, and markets traded higher amid concerns that the smaller 400,000 b/d bump would be insufficient to keep pace with resurgent demand.

"With demand expected to grow some 3 million b/d in the third quarter alone, this potential agreement would keep markets on a tightening path and keep the summer breakout well underway. As such, we think $80/b WTI is not out of the realm of possibility," TD Securities analysts said in a note.

European mobility indicators for the week to June 27 showed land-based mobility, a proxy for diesel and gasoline demand, remained stable at around 14% below pre-pandemic levels despite the spread of the Delta coronavirus variant, according to Google data.

But in the US, energy demand coupled with stagnant production levels has contributed to steep inventory draws in recent weeks.

US commercial crude oil inventories fell 6.72 million barrels to 452.34 million barrels in the week ended June 25, US Energy Information Administration said June 30, leaving stocks nearly 7% behind the five-year average for this time of year.

"In our opinion, such an increase [in production] would hardly be able to prevent a further rise in oil prices given that OPEC estimates that the market will be 1.9 million b/d short in the second half of the year," Eugen Weinberg, Head of Commodities Research at Commerzbank, said in a daily note.

The ICE Brent-WTI spread narrowed to minus $1.51/b in afternoon trading, the closest the two benchmarks have been since October 2020.