Oil slides as EU moves to ban combustion engines and OPEC+ eyes new deal

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·4 min read
BRUSSELS, BELGIUM - JULY 14: Ursula von der Leyen, president of the European Commission attends a press conference as EU unveils a landmark climate plan in Brussels, Belgium, on, July 14, 2021. (Photo by Dursun Aydemir/Anadolu Agency via Getty Images)
EC president Ursula von der Leyen said it will “set a time frame by which all cars must be emission-free”, as the EU plans to cut its greenhouse gas emissions by more than half by the end of the decade. Photo: Dursun Aydemir/Anadolu Agency via Getty Images

Oil prices slumped on Thursday amid reports that the European Commission (EC) was looking to ban combustion engines in the EU.

It also came as Saudi Arabia and the United Arab Emirates have reached a compromise over OPEC+ policy.

Brent Crude (BZ=F) was down 0.8% in early trade, with oil stocks helping to drag the FTSE 100 lower on the day.

Brent crude slipped on Thursday on the back of the news. Chart: Yahoo Finance
Brent crude slipped on Thursday on the back of the news. Chart: Yahoo Finance

In an interview with Süddeutsche Zeitung, EC president Ursula von der Leyen said it will “set a time frame by which all cars must be emission-free”, as the EU plans to cut its greenhouse gas emissions by more than half by the end of the decade.

The bloc is aiming for sales of new vehicles that produce carbon emissions to be banned from 2035, with almost 100% of cars on the roads in 2050 to be emissions free.

The proposals are part of a broad climate package, revealed on Wednesday, which aims to speed up the shift to electric vehicles.

The plan, called “fit for 55”, calls for the 27 member states to cut their output of greenhouse gases by 55% by 2030, compared with 1990 levels.

Cars account for about 12% of total EU CO2 emissions, so curbing that output will be key to achieving the bloc’s overall climate goals.

“A combination of measures is required to tackle rising emissions in road transport,” the EC said in a statement, adding that “stronger CO2 emissions standards for cars and vans will accelerate the transition to zero-emission mobility”.

Earlier this week France and Germany pushed back against the ban by 2035, calling for a more lenient target.

Watch: EU proposes ban on new fossil-fuel car sales from 2035

It comes as Reuters reported two major oil producers had reached a compromise after a recent disagreement. The move, which was confirmed by an OPEC+ source, could unlock a deal to supply more crude to the market and reduce rising prices.

However, in a statement on Wednesday, the UAE energy ministry said that a deal with OPEC+ on its baseline is yet to be reached and that deliberations are continuing.

A few weeks ago, the Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) aborted a meeting after failing to agree on a production deal.

The cartel had been due to continue talks on future production levels but a disagreement between the UAE and Saudi Arabia over production cuts boiled over and the meeting was cancelled at the last minute.

This derailed plans by OPEC+ to boost output in August and beyond to meet rising demand.

Read more: Oil falls to lowest level in almost three weeks amid supply uncertainty

OPEC+ decided to slash production by nearly 10 million barrels per day (bpd) last year as demand tumbled at the start of the COVID-19 pandemic. The curbs have been gradually relaxed since then and now stand at about 5.8 million bpd.

Oil prices have risen 50% since the start of the year as the world has begun relaxing COVID-era restrictions. But the UAE rejected a proposed eight-month extension to output curbs that OPEC+ had imposed on each other last year.

The OPEC+ source told the newswire that Riyadh had agreed to Abu Dhabi's request to have the UAE's baseline, the level from which cuts under the OPEC+ agreement on supply curbs are calculated, set at 3.65 million bpd from April 2022, up from 3.168 million now.

Giving the UAE a higher production baseline paves the way for extending the overall pact to the end of 2022, the OPEC+ source said.

The producers will decide on a new date for the next meeting soon.

Watch: Oil market seeing a ‘perfect storm’ of supply and demand: Prosper Trading Academy CEO

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