OIL FUTURES: Crude prices hold steady amid OPEC+ cautious optimism

Crude oil futures largely held steady July 2 amid optimism that the OPEC+ group would agree to smaller production hikes below market expectations through the end of 2021, although oil prices settled for the day before a final agreement could be achieved.

Most of the holdup focused on the United Arab Emirates arguing it should have a higher baseline production number, and opposing the cartel's wishes to extend the production cuts agreement beyond the end of 2021.

However, OPEC+ could still agree to increase its total output by an average of just 400,000 b/d a month starting in August, which is below the previous market prognostications, and extend the agreement by some compromise duration into 2022.

Front-month NYMEX WTI dipped 7 cents to settle at $75.16/b after rising above the $75/b threshold July 1 for the first time since October 2018. ICE September Brent, on the other hand, rose 33 cents to settle at $76.17/b.

As for products, NYMEX August RBOB rose 3.22 cents to $2.2998/gal and August ULSD moved 2.29 cents higher to $2.1791/gal.

Rystad Energy oil markets analyst Louise Dickson said the oil futures were down much of the morning of July 2 as concerns of an OPEC+ stalemate grew, but prices ticked back up during the day as optimism picked back up that some consensus compromise eventually could be reached.

"The gains of the previous day were trimmed in the late trading, when the UAE appeared to block the deal, demanding a higher production quota to match the lenience been given to Russia and Iraq," Dickson said.

Although it would be unexpected, a breakup of the entire alliance could cause oil prices to plunge similarly to the temporary Saudi-Russia pricing war that resulted from the March 2020 meeting, she said. If, however, a deadlock resulted in current production volumes staying flat, then a very tight oil market could cause prices to spike as global demand grows during the summer months.

The White House said July 2 that President Joe Biden is concerned about higher gasoline prices and emphasized that there is enough spare production capacity globally to accommodate rising oil demand worldwide, especially during the busy summer travel months.

Biden also touted US jobs numbers that saw 850,000 non-farm positions added back to payrolls in June, which was higher than expected, although the unemployment rate ticked back up slightly to 5.9% as more people voluntarily left jobs and the number of people looking for jobs declined.

Iranian officials also stressed that they are close to a deal to restore a nuclear accord with the US and to bring back more of their oil supplies onto the global markets.

Sophie Griffiths, a market analyst for OANDA, noted that consistently higher crude prices rose by more than 10% in June alone.

"As economies reopen, surging demand is being met with limited supply, given the OPEC output cuts," Griffiths said. "Failure to boost output could see oil prices head toward $100/b sooner rather than later."

Another unrelated variable along the US Gulf Coast is the potential path of the newly formed Hurricane Elsa in the Atlantic Ocean. However, the National Hurricane Center most recently projected a minimal impact on offshore oil production in the Gulf of Mexico.

The projected path shows Elsa weakening into a tropical storm over Cuba and heading to Florida July 6 without picking up much more additional strength.