(Bloomberg) -- Oil closed higher with OPEC+ ministers divided ahead of a key meeting later this week on production policy.
Futures in New York managed to eke out a small advance after switching between gains and losses on Tuesday. While OPEC+ members such as Russia have considered backing an increase in output, Saudi Arabia has exercised caution in the face of growing demand and global spread of the delta variant. The alliance delayed preliminary talks between ministers by one day to allow more time to resolve differences.
Meanwhile, futures clung to gain in after-market trading after the industry-funded American Petroleum Institute was said to report U.S. crude supplies fell 8.15 million barrels last week. That would be the largest inventory decline since January if U.S. government data confirms it on Wednesday.
“We’ll see the trading continue to be choppy until Thursday when the actual meeting is held and we get the official decision,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management.
Oil prices have climbed about 50% this year as key economies such as the U.S., U.K. and China have reopened, buoyed by mass vaccination campaigns. But the recent spread of the delta variant threatens to slow an ongoing global demand recovery. The resurgence may even lead to export-focused refiners in Asia trimming processing rates.
At the start of the OPEC+ alliance meeting on Tuesday, Secretary-General Mohammad Barkindo praised the market’s strong fundamentals but cautioned that it’s “not completely out of the woods yet.” The 23-nation alliance is expected to revive some of the halted supplies it shuttered when demand collapsed, with analysts expecting an increase of 550,000 barrels a day.
Even a larger-than-expected supply boost from OPEC+ will not reach inventories in time to alleviate the tight market, Goldman Sachs Group Inc (NYSE:GS). analysts including Damien Courvalin and Jeff Currie wrote in a report.
“Ultimately, much more OPEC+ supply will be needed to balance the oil market by 2022,” they said.
The API also reported stockpiles at the nation’s largest storage hub in Cushing, Oklahoma, fell 1.32 million barrels last week. Gasoline supplies rose 2.42 million barrels, the data showed.
Meanwhile, the delta variant has become dominant in France and Germany, and the U.K. on Monday reported most new Covid-19 cases since January. Close to half of Australia’s population is now in lockdown as the nation struggles to contain the spread of the strain.
“The delta variant will continue to be in the background and potentially keep the commodity from exploding higher,” said Babin.
(A previous version of this story corrected the day of the week in the second paragraph.)
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