Oil futures: Crude sinks 2% on UAE-Saudi reports and bearish EIA report

Quantum Commodity Intelligence – Crude futures briefly fell below $74/b for the first time in four sessions on Wednesday after a bearish US weekly oil inventory report followed news that the United Arab Emirates and Saudi Arabia had tentatively agreed to increase the former's quota baseline, a move that could lead to increased OPEC+ output.

After opening the day down $0.20/b at $76.28/b, front-month Brent crude futures rose to a high of $76.72/b, before sliding to $73.89/b.

The Energy Information Administration showed US commercial oil stocks, including crude and products, was up 2.5 million barrels over the week, even with a 7.9 million barrel draw in crude stocks and a drop in refinery utilization rates. 

By 1735 GMT, the front-month contract had rebounded to $74.71/b, down almost 2%.

At the same time, August WTI was trading at $73.17/b, down from Tuesday's settle of $75.25/b.

The start of the price slide came immediately after the delayed announcement of the report, which also showed a drop in US gasoline demand, at 1530 GMT. 

The oil statistics coincided with a statement by the UAE clarifying that no OPEC+ deal had been reached.

While that should have been bullish, it was initially ambiguous on whether an agreement with Saudi Arabia to allow it to increase production had been agreed - a pact that had been leaked by officials to media earlier in the day.

Any such agreement to allow the UAE to boost its baseline level that OPEC+ cuts are measured against would not only allow the UAE to produce more crude but could also unlock a broader OPEC+ pact that could see output rise by a total of 2 million barrels per day by the end of the year.

However, any deal between Saudi and the UAE would need support from the broader OPEC+ group. 

And market sources speculated that any bilateral deal between the UAE and the Saudis could open up a "can of worms" by encouraging other countries to ask for a revision to baselines that would allow them to boost crude production at the expense of others.

Either way, the market viewed the day as bearish and the UAE said talks between itself and Saudi officials are ongoing ahead of a 19 July deadline - which is the start of a week-long holiday in the region.