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Oil holds steady after OPEC+ failed to reach consensus on production at July 1 meeting

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(S&P Global Platts) Crude oil futures were steady during mid-morning trade in Asia July 2 as the market awaited clarity on OPEC+’s production plans for August onwards, after the producer group failed to reach consensus at a fractious July 1 Joint Ministerial Monitoring Committee meeting.

At 10:26 am Singapore time (0226 GMT), the ICE September Brent futures contract was up 10 cents/b (0.13%) from the previous close at $75.94/b, while the NYMEX August light sweet crude contract was up 8 cents/b (0.11%) at $75.31/b.

The market remains in limbo after objections from the UAE soured proceedings at the JMMC meeting, forcing the committee to adjourn without reaching a consensus on a production recommendation for August onwards.

During the course of the JMMC, members had reached a tentative agreement to boost production by 400,000 b/d a month from August to December, shrinking the OPEC+’s collective output cut to about 3.76 million b/d from the 5.76 million b/d cut expected in July.

However, according to sources, tensions escalated after the UAE requested that its baseline production level, from which its quota is determined, be hiked significantly due to the capacity additions it has made over the last three years.

The UAE’s baseline under the current pact, determined by its October 2018 production level, is 3.168 million b/d, but the UAE claims it is now closer to 4 million b/d. Increasing the UAE’s baseline would allow it to pump more crude into the market.

The UAE’s request was dismissed by the other members and the monitoring committee failed to reach a compromise, deciding to continue discussion on July 2. The full OPEC+ ministerial meeting that was scheduled to have started after the JMMC was also postponed to July 2.

“Talks are set to resume today in order to try to reach a deal. Failure to come to an agreement could mean that the group continues with current levels of production, which would mean that the market tightens even quicker,” ING’s head of commodities strategy Warren Patterson and senior commodities analyst Wenyu Yao said in a July 2 note.

Ahead of the July 1 OPEC+ meeting, analysts had been expecting OPEC+ to raise production by a moderate 500,000 b/d in August, anticipating the coalition would be mindful of the threat of demand destruction from the spread of the delta coronavirus variant, and from the possibility of a deal with Iran over the Joint Comprehensive Plan of Action.

Using analyst expectations as a benchmark, the tentative agreement of 400,000 b/d reached during the JMMC was slightly conservative, and analysts said that if that figure was ratified later July 2, the market was likely continuing to tighten, as an easing of pandemic restrictions in the west was driving a recovery in oil demand.

“The increase [agreed upon initially] was slightly lower than expected, which should see the market tighten over the coming months,” ANZ analysts said in a July 2 note.

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