Oil prices drop after Saudi Arabia and UAE reach output compromise

Oil prices dropped on Wednesday after Reuters reported that Saudi Arabia and the United Arab Emirates had reached a compromise over a global supply deal that will allow the UAE to boost its output.

The deal between the two Gulf producers means that members of the Petroleum Exporting Countries (OPEC), Russia and other producers, a group known as OPEC+, will be able to extend a deal to curb output until the end of 2022, the sources said.

Brent crude was down 57 cents, or 0.75%, at $75.92 a barrel by 1120 GMT after dropping by over $1 earlier. West Texas Intermediate was off by 58 cents, or 0.77%, at $74.67 a barrel.

Disagreement between OPEC's defacto leader Saudi Arabia and the UAE led to a collapse in talks last week on boosting production as global demand recovers from the coronavirus pandemic.

Under the compromise with Saudi Arabia, the UAE's baseline production will rise to 3.65 million barrels per day after the current pact expires in April 2022, the source said.

Oil prices were earlier under pressure after data showed China's crude imports dropped by 3% from January to June compared with a year earlier, the first such contraction since 2013, as import quota shortages, refinery maintenance and rising global prices curbed buying.

"Imports were scaled back as surging prices for crude oil have eroded refinery profit margins," Eurasia Group said in a note.

Lending support to the market, U.S. stockpiles of oil and gasoline inventories fell last week, according to two market sources on Tuesday, citing American Petroleum Institute figures.

Crude inventories declined by 4.1 million barrels for the week ended July 9, the sources said.

If confirmed on Wednesday when the Energy Information Administration (EIA) releases its weekly data, the draw would mark a seventh consecutive week of inventory declines.

The International Energy Agency said global withdrawals from storage in the third quarter were set to be the most in at least a decade, pointing to early June stock draws in the United States, Europe and Japan.