Crude oil futures steady as OPEC+ discord keeps August production plan in limbo

0332 GMT: Crude oil futures were steady during mid-morning trade in Asia July 5 as the market continued to await guidance on the OPEC+ alliance's production plan for August onwards after the UAE's desire for a higher output target soured negotiations.

At 11:32 am Singapore time (0332 GMT), the ICE September Brent crude futures contract slipped 8 cents/b (0.11%) from the previous close at $76.09/b, while the NYMEX August light sweet crude contract was down 11 cents/b (0.15%) at $75.05/b.

The stability in the market comes as investors wait for a definitive production plan from OPEC+, which is in a quandary after sustained objections from the UAE forced the producer group to reconvene for a second time July 5 at 3 pm Vienna time (1300 GMT).

OPEC+ was set to agree on boosting collective crude output by 400,000 b/d each month from August to December and to extend its supply management agreement through the end of 2022. However, the UAE stymied the proceedings by insisting its baseline production level, from which its quota is determined, should be raised.

The UAE's baseline under the current pact, determined by its October 2018 production level, is 3.168 million b/d, but the country now claims a capacity closer to 4 million b/d. Increasing the baseline would enable the UAE to pump more crude.

Other OPEC+ members deemed this request to be unfair. Saudi energy minister Prince Abdulaziz bin Salman told the Al-Arabiya network that the UAE was isolated in its position, and that all other members had approved the deal.

Analysts have said that failure to reach a deal that allows for an increase in production quotas would tighten an already undersupplied market. This is especially since a lack of consensus would see the alliance revert to its existing production agreement, under which output quotas would remain flat at July levels.

Analysts have also raised concerns that the UAE may leave the alliance altogether, a prospect the country had previously considered. Another scenario entails the breakdown of co-operation within the alliance itself, which could see a flood of oil entering the market.

"In the bigger picture, oil traders and other market watchers are apprehensive that a more dramatic scenario could be in play -- OPEC+ unity may break down entirely, risking a free-for-all that would crash prices in a repeat

of the crisis last year," Avtar Sandu, senior commodities manager at Phillips Futures said in a July 5 note.

Analysts also said that even if OPEC+ cooperation is restored, and a monthly hike of 400,000 b/d from August until December is ratified, the oil markets could be in for a tumultuous time. In this scenario, demand would easily outstrip supply, leading to an overheated market.

This view was echoed by Mike Muller, head of Vitol Asia. "There is very little doubt, that whatever OPEC agrees by way of lessening of the cutbacks it will surely .... be a fraction of that amount needed to meet demand," he said.