Saudi-UAE Oil Production Agreement Sends WTI Down 2.8%... "Alleviating Anxiety" (Comprehensive)

OPEC+ Meeting Expected to Resume Soon
US Gasoline Inventories Increase Contrary to Expectations

[Asia Economy Reporter Hyunwoo Lee] International oil prices sharply dropped as concerns eased following reports that Saudi Arabia and the United Arab Emirates (UAE) have successfully reached an agreement on oil production levels. OPEC+ (the Organization of the Petroleum Exporting Countries (OPEC) member countries and non-OPEC allies) is expected to resume talks soon and announce the previously stalled production agreement.

On the 14th (local time), the Wall Street Journal (WSJ), citing sources, reported that Saudi Arabia and the UAE agreed to raise the production baseline. On the same day, Saudi Arabia and the UAE agreed to increase the UAE's production baseline to 3.65 million barrels per day starting from April next year. The OPEC+ meeting is also planned to resume shortly.

The UAE Ministry of Energy issued a statement saying, "An agreement has not yet been fully reached, and negotiations are ongoing," adding a cautious stance that "support from other OPEC countries is needed." However, market expectations are growing that the agreement will succeed. The UAE has previously opposed the OPEC+ production cut agreement, insisting that its production baseline should be raised from the existing 3.2 million barrels per day to 3.8 million barrels per day.

Following the news, international oil prices showed a downward trend as concerns temporarily eased. On the New York Mercantile Exchange (NYMEX) that day, West Texas Intermediate (WTI) crude oil prices fell 2.8% from the previous session to close at $73.13 per barrel. Brent crude on the London ICE Futures Exchange also closed down 2.26% at $74.76 per barrel compared to the previous day.

The recent price surge was followed by concerns that demand might weaken due to unexpectedly increased U.S. gasoline and refined product inventories. This contributed to the decline in oil prices. The U.S. Energy Information Administration (EIA) reported that gasoline inventories increased by 1 million barrels, a significant difference from the market forecast of a 1.8 million barrel decrease. Refined product inventories also rose by 3.7 million barrels, contrary to the market expectation of a 870,000 barrel increase, impacting the sharp drop in oil prices.

Phil Flynn, senior market analyst at Price Futures Group, told MarketWatch, "The likelihood of a final production agreement among Saudi Arabia, the UAE, and other OPEC+ countries has increased," adding, "With the fear of a full-scale production war disappearing, oil prices are expected to show a stable trend."

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