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(Bloomberg) — Oil’s rally fizzled as a build in U.S. fuel inventories and a potential OPEC+ agreement to increase supply cooled a buying spree that had pushed the market above $75.

Futures in New York fell 2.8%, the most since May. Both gasoline and distillate inventories rose last week, according to a U.S. government report. Meanwhile, Saudi Arabia and the United Arab Emirates were said to resolve the standoff that has prevented OPEC+ from satisfying growing demand for extra barrels. Technical indicators also showed crude close to overbought territory earlier Wednesday, which signals oil may be due for a pullback.

With the prospect of more supply from OPEC+ and crude nearing overbought levels, “it’s not surprising to see it down,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC.

Economic recovery in countries like the U.S. and China has increased fuel consumption over the course of this year, propelling oil prices forward by more than 50%. Rising demand, especially during the peak summer travel season in the U.S., drew warnings about a deepening supply deficit after OPEC+ talks on a production hike broke down earlier this month.

The latest breakthrough proposal involves a higher output quota for the UAE, which said OPEC+ talks are ongoing. It would need to be approved by all OPEC+ members before it can take effect.

At the same time, other members are also seeking better terms to redress grievances. Iraq is also pursuing a higher production baseline, according to a delegate, who didn’t specify the number it’s requesting or when it would take effect.

If the compromise is ratified at a new meeting, it could open the way to higher output, although some members have already locked in most of their supply volumes for August. The 23-nation coalition is aiming to restore supplies in installments of 400,000 barrels a day through to late 2022.

“So far it’s been proven that the OPEC+ agreement has been effective at stabilizing oil prices,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets.

The impasse introduced volatility in the market over the last week while near-term supply remained in question. In addition to gasoline, a boom in durable goods is driving demand for naphtha to make plastics as well as diesel to power deliveries.

Domestic crude supplies tumbled for the eighth straight week, according to the weekly report. Inventories at the nation’s largest storage hub in Cushing, Oklahoma, fell by 1.6 million barrels.

Still, the ongoing spread of the delta variant casts a shadow on the demand outlook for oil. Daily cases in Indonesia surpassed those in India, and Australia’s most populous city, Sydney, extended a lockdown for two more weeks. Cases in Malaysia and South Korea reached record highs.

“Trouble is brewing for the oil market,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. “Fears are mounting that rising Covid-19 Delta cases could delay a full economic recovery. This, in turn, poses a significant threat to oil demand growth in the near-to-medium-term.”

(A previous version of this story corrected the delivery months of the price contracts.)

©2021 Bloomberg L.P.





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