0306 GMT: Crude oil futures extended overnight losses during mid-morning Asian trade July 8 as the release of bullish American Petroleum Institute data failed to lift market sentiment, amid fears of a breakdown in OPEC+ cooperation, while a stronger US dollar providing further headwinds for prices.
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At 11:06 am Singapore time (0306 GMT), the ICE September Brent futures contract was down 20 cents/b (0.27%) from the previous close at $73.23/b, while the NYMEX August light sweet crude contract was down 31 cents/b (0.43%) at $71.94/b. The Brent and NYMEX light sweet crude markers had fallen 1.48% and 1.59% overnight to settle at $73.43/b and $72.20/b, respectively.
Market analysts attributed the downslide to concerns that the OPEC+ agreement could break down after the producer group cancelled its July 5 meeting before agreeing on an increase in production quotas August onward.
The fears were kindled by media report, which said that the UAE could raise output outside of the OPEC+ agreement, with analysts saying such a move could prompt other members to follow suit in the ensuing battle for market share. The UAE had earlier, during OPEC+ negotiations, objected to Saudi Arabia's plan to tie the production increases to a lengthening of the supply management pact through to the end of 2022, insisting that its baseline production level from which its quota is determined be raised first to reflect its current capacity.
"Global and US crude oil prices extended their declines on Wednesday (July 7) as investors continued to monitor the standoff between the United Arab Emirates (UAE) and Saudi Arabia. Dow Jones reported (citing unnamed sources) that the UAE's new strategy was to sell as much crude as possible before demand dries up," UOB analysts said in a July 8 note.
"The energy market has a handful of strong years left as the world makes the shift to renewable energy, so most OPEC+ members feel the urgency to capitalize this moment of robust demand and high prices," Edward Moya, senior market analyst at OANDA added in a July 8 note.
Outside of the OPEC+ saga, oil prices were also weighed down by a stronger US dollar, with the US dollar index trading at 92.77 at 10:56 am, up 0.24% from the previous settle. Analysts said the appreciation of the dollar was driven by signs of strength in the US labor market following the release of the May Job Openings and Labor Turnover Survey, or JOLTS, report.
A stronger US dollar makes dollar denominated assets such as oil more expensive for buyers holding foreign currency, and hence dampens their demand.
OPEC+ concerns and the strength of the US dollar negated the impact of the bullish API data, released late July 7.
The API data showed US crude inventories falling by 7.98 million barrels in the week ended July 2, and US gasoline inventories falling 2.74 million barrels. Distillate inventories registered a build, rising 1.09 million barrels.
The market will be looking forward to more comprehensive inventory data from the Energy Information Administration, due to be released later July 8.