(Bloomberg) — Oil declined after OPEC stuck with a plan to boost crude production, with the cartel wagering that the global market can absorb the additional supply as demand improves and stockpiles get drawn down.
West Texas Intermediate was 0.4% lower after closing little changed on Wednesday. Following a swift midweek meeting, ministers from the Organization of Petroleum Exporting Countries and its allies ratified the 400,000 barrel-a-day rise scheduled for October. In the U.S., a government report showed a further contraction in nationwide crude inventories.
Crude has rallied about 40% this year as consumption bounced back from the impact of the coronavirus pandemic, although the bulk of the gains came in the first half. Against that backdrop, OPEC has been gradually restoring more of the supply it suspended last year when the global health crisis erupted.
“Without a surprise from OPEC producers on supply, oil is taking a hit as concerns surrounding the spread of Covid delta variant, as well as new variants, still linger, continuing to weigh on global demand,” said Will Sungchil Yun, a senior commodities analyst at VI Investment Corp. “WTI is likely to keep trading in the $60s, but will have a tough time shooting above $70.”
Further evidence of a tightening market came on Wednesday as the U.S. government reported that nationwide crude stockpiles sank 7.2 million barrels last week to the lowest in almost two years. In addition, total oil products supplied, a proxy for demand, hit the highest in data going back to 1990.
Traders were also assessing progress in the U.S. toward restarting crude production and refining after the passage of Hurricane Ida, which slammed into Louisiana last weekend. Most processors had escaped major damage and are expected to be back online within three weeks, according to IHS Markit.
Brent’s prompt timespread was 58 cents a barrel in backwardation. That’s a bullish pattern, marked by near-dated prices trading above later-dated ones, and compares with 89 cents a week ago.
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