Oil prices had their worst week in months even after crude prices edged higher Friday, as the market absorbed news that the United Arab Emirates had a deal with OPEC+ that at least one hedge fund said could open “a can of worms” on the cartel’s output.
New York-traded West Texas Intermediate crude, the benchmark for U.S. oil, settled up 35 cents, or 0.5%, at $72 per barrel. For the week though, WTI lost $2.56, or 3.4%. It was the largest weekly loss for U.S. crude since the week ended April 2.
London-traded Brent, the global benchmark for oil, rose 12 cents, or 0.2%, to finish the session at $75.55. For the week, Brent lost $1.96, or 2.6%, for its sharpest weekly decline since the week to May 14.
OPEC+ – which groups the 13 member Saudi-led Organization of the Petroleum Exporting Countries with 10 other oil producers led by Russia – had initially failed to agree on August production levels after the UAE sought a higher baseline for measuring its output cuts.
News reports from the past couple of days, however, suggested that Saudi Arabia and the UAE have reached a compromise, paving the way for OPEC+ producers to end an uncertainty that had bogged down the market and prices for weeks.
“All signs indicate that OPEC+ is heading for a potential compromise agreement that will allow the UAE to secure a baseline adjustment,” RBC Capital analysts said in a note. “Other producers will undoubtedly seek similar treatment and potentially prolong the deliberations heading into the August ministerial meeting.”
John Kilduff, founding partner at New York energy hedge fund Again Capital, concurred with that view.
“This certainly opens a can of worms where OPEC production is concerned,” said Kilduff. “The Iraqis were already talking about wanting their baseline for production increased too.”
“Unless the Saudis can point at the new Covid outbreaks from the Delta variant and say ‘hey, we should all keep our production down in order not to lose what we have gained’, I think oil prices will remain under pressure.”
On the Covid front, vaccination rates are down and cases are on the rise, exacerbated by the more transmissible Delta variant — and an expert said earlier this week that the key to winning the race against the spread is getting more Americans vaccinated.
“We’re losing time here. The Delta variant is spreading, people are dying, we can’t actually just wait for things to get more rational,” Dr. Francis Collins, director of the National Institutes of Health, said Wednesday.
Vaccines have been available to most Americans for months, but still only 48.2% of the country is fully vaccinated, according to the U.S. Centers for Disease Control and Prevention — and the rate of new vaccinations is on the decline.
Meanwhile, case rates have been going up dramatically. In 47 states, the rate of new cases in the past week are at least 10% higher than the previous week, according to data from Johns Hopkins University. Of those, 35 have seen increases of over 50%.