(Bloomberg) — Oil dropped below $72 a barrel as concern over the delta coronavirus variant rose, and traders waited for fresh signals from Saudi Arabia and the United Arab Emirates in their dispute over output policy.
West Texas Intermediate shed 0.5%, heading for the biggest weekly loss since March, as the dollar firmed. The World Health Organization has urged caution on the pace of reopenings, with most regions seeing more infections. Indonesia is in the throes of a major outbreak, Thailand has seen a jump in cases, and Japan is set to declare a state of emergency over the Tokyo Olympics.
A plan by the Organization of Petroleum Exporting Countries and its allies to ease supply curbs in August and beyond to meet rising demand has been derailed by sparring between the Saudis and the UAE. While the impasse may tighten the market if no extra barrels are released next month, it also raises the possibility of a price war should producers opt to boost output unilaterally.
Crude has rallied in 2021 as markets including the U.S. beat back the pandemic, allowing economies to reopen and stoking demand. The gains in oil — which added more than 20% in each of the past three quarters — have been aided by OPEC+ discipline and unity in controlling supply, but the group’s cohesion has fractured just as the challenge from the delta variant grows. The row has spurred speculation the UAE may go so far as to quit the cartel altogether.
“It seems now the market is positioning for the UAE exiting OPEC+, which is somewhat bearish,” said Vandana Hari, founder of consultancy Vanda Insights. “The pause in crude’s rally forced by the OPEC+ limbo also prompts the market to start paying more attention to demand risks from the delta variants.”
Crude’s loss this week has come despite another draw in U.S. stockpiles. The American Petroleum Institute said crude holdings fell almost 8 million barrels last week, while inventories of gasoline also dropped, according to people familiar with the data. Official figures for supplies are due later on Thursday.
The market’s pricing patterns remain bullish, with near-term barrels trading above those further out. Brent’s prompt timespread was 89 cents a barrel in backwardation, a touch higher than 88 cents a week earlier.
UBS Global Wealth Management is among those who remain optimistic. “Look at our oil price forecast — we are looking at 80 bucks,” Dominic Schnider, head of commodities and Asia Pacific foreign exchange, said on Bloomberg TV. “I know we have some challenges at this point in OPEC but once we resolve that, and with the demand increase, the market is likely to be in deficit.”
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