What cause the oil price to decline so much?

[dan_s]

It was NOT the OPEC+ deal.

Investing.com
Oil got caught up in Monday’s broader selloff in stocks, cryptocurrencies and even Treasuries, the tumble in oil was still surprising to some. This was because OPEC+ had tried to do just what was needed to get a production deal in August, while keeping its output well below demand levels.

The 23-nation OPEC+—which groups the 13 member Saudi-led Organization of the Petroleum Exporting Countries with 10 other oil producers led by Russia—said it will increase supply by 2 million barrels from August through December.

The deal to add 400,000 barrels daily each month over the next five months was precisely what the alliance tried to come to agreement on two weeks ago, before the United Arab Emirates objected to having its baseline output—from which cuts are being calculated—stuck at March 2020 levels.

Under the revised deal, the UAE will see its baseline production increase to 3.5 million bpd from May 2022 from today's 3.168 million.

OPEC+ also agreed on new output quotas as well for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq. The Saudis and Russians who lead the cartel will see their baselines rise to 11.5 million bpd each from the current 11 million. The overall adjustment will add 1.63 million bpd to supply from May next year, according to Reuters calculations.

Overall, the net addition of 2 million barrels agreed over the next five months is still short of an estimated 3.5 million barrels of higher demand envisaged for the period.

But that demand estimate was also made before the Delta induced, COVID blow-ups we’ve seen in recent weeks.

Tug of War: Delta Variant Versus Oil Demand

Cases of the Delta variant of COVID have surged since mid-June, prompting some countries, including Australia and South Korea, to reintroduce restrictive lockdown measures. The UK on Saturday reported the highest number of daily COVID-19 cases since January 2021, ahead of England’s lifting of most restrictive measures on July 19. < MY TAKE: Lockdowns and masks did not stop the virus from spreading before, so why do lockdowns again which do nothing but put more people out of work and kill small businesses.

To be sure, there’s no certainty on what oil demand will be over the next five months, though it’s expected to be substantial. Likewise, there’s no knowing what the fall-to-winter wave of the pandemic will be, though it could also be substantial.

So, back to the question raised at the start: Will OPEC+ be able to ward off the oil bears from causing more damage?

The answer is probably yes, but odds are that crude prices have more to lose since OPEC cannot immediately cut production—its biggest weapon against short-sellers—just after announcing hikes for August onward. < We should see another decline in U.S. oil inventories tomorrow for the week ending July 16 and as long as U.S. refinery utilization stays over 90% of capacity the draws from storage will continue through at least August. Plus, the amount of oil in "floating storage" is very low.

While the oil cartel is still withholding some 5.8 million barrels from the market, it may have to wait patiently for the next wave of the pandemic to subside—or the lingering summer demand for oil to be truly overwhelming, as projected, to give crude prices another mega boost.

[SergioSays]

is there publicly available data that attempts to estimate the amount of floating storage worldwide?

[dan_s]

Yes: https://www.iea.org/reports/oil-market-report-july-2021

[Fraser921]

from this report they state

"OECD total industry stocks rose by 18.1 mb in May and stood at 2 945 mb, 75.8 mb below the 2016-2020 average and10.8 mb below the pre-Covid 2015-19 average. Preliminary June data for the US, Europe and Japan show that industry stocks fell by a combined 21.8 mb. Crude oil held in short-term floating storage declined by 23.7 mb to 83.3 mb in June, its lowest since February 2020.

[dan_s]

The amount of oil in floating storage is important because oil in tankers is the first source of oil for refiner if they run out of physical oil onshore. From the time oil is loaded onto a tanker in the Middle East it takes about 3 months to reach the U.S. Gulf Coast. Also, tropical storm activity in the Gulf of Mexico can and usually does have a significant impact on how much seaborne oil can be imported August thru October.