Oil declines after Opec+ agrees to boost production into 2022

Opec+ its allies will add 400,000 barrels a day each month from August until all its halted output has been revived. PHOTO: REUTERS

NEW YORK (BLOOMBERG) - Oil eased after Opec+ agreed to boost production into 2022, resolving an internal dispute that had shaken the alliance.

Brent crude declined 0.5 per cent after losing 2.6 per cent last week, while West Texas Intermediate slipped.

The Organisation of Petroleum Exporting Countries (Opec) and its allies will add 400,000 barrels a day each month from August until all its halted output has been revived. The deal also gives Saudi Arabia, the United Arab Emirates, Iraq, Kuwait and Russia higher baselines against which their output cuts are measured from May 2022.

The complex pact, announced at the weekend after a spat between Saudi Arabia and the UAE, gives traders a better view of how quickly the cartel will restore the 5.8 million barrels a day it's still withholding, since making deep cuts last year in the initial stages of the pandemic. It also resolves longstanding grievances that tested the unity of the alliance.

After soaring 45 per cent in the first half, Brent hit a turbulent patch this month.

The bitter wrangle at Opec+ spurred confusion among investors about the group's plans for output just as the spread of the Delta variant sowed concern about the potential impact of fresh outbreaks on demand.

Still, with stockpiles being drawn down, market watchers, including the International Energy Agency, have said that additional barrels were needed to plug a projected shortfall.

While the Opec+ agreement spans more than a year and covers millions of barrels of production, it remains a flexible arrangement. The alliance will continue to hold talks every month, including a review of the market in December. It could adjust the schedule if required, according to Saudi Energy Minister Prince Abdulaziz bin Salman. The next gathering will be Sept 1.

Brent's prompt time spread was little changed at 63 US cents a barrel in backwardation, a bullish pattern with near-dated prices trading above those further out. That's down from 74 US cents a week ago.

The more infectious Delta variant is still on the ascendant, especially among the unvaccinated, with some countries reimposing curbs. In Asia, Indonesia, Thailand, South Korea, Vietnam and Singapore are all dealing with outbreaks. Elsewhere, Britain on Saturday reported the most cases since January.

Oil traders will also be on alert in the coming days for Iran's first crude export from outside the Persian Gulf and beyond the Strait of Hormuz. The Islamic Republic plans to ship a cargo of crude from Jask in the Gulf of Oman, according to Jask Oil Terminal's director Vahid Maleki.

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