Oil extended losses to drop below $73 a barrel after U.S. gasoline stockpiles unexpectedly expanded, and on signs OPEC+ is closing in on an agreement to boost production after key members resumed negotiations.

Futures in New York lost 0.5% after falling 2.8% on Wednesday, the most since mid-May. American inventories of gasoline and distillates -- a category that includes diesel -- both rose last week, offsetting an eighth weekly draw in U.S. crude stockpiles, according to Energy Information Administration data.

While talks between the United Arab Emirates and Saudi Arabia are ongoing, they are nearing a deal that could give the UAE a more generous output limit next year and allow OPEC+ to boost supply in coming months, said delegates familiar with the discussions.

Oil has whipsawed since the start of the month after OPEC+ abandoned a plan to increase supply from August due to an impasse with the UAE, while a resurgence in Covid-19 injected more uncertainty into the short-term outlook. The International Energy Agency on Tuesday warned that the market would tighten significantly if the alliance didn’t add more barrels.

The UAE’s energy ministry issued a statement acknowledging the talks, but said no agreement had yet been reached with the whole of OPEC+. However, the country’s demands for better terms could see other members seek to redress grievances of their own, potentially challenging the alliance’s unity. According to one delegate, Iraq is also pursuing a higher production baseline.

Prices
West Texas Intermediate for August fell 0.5% to $72.74 a barrel on the New York Mercantile Exchange at 8:10 a.m. in Singapore. Brent for September settlement lost 0.4% to $74.45 on the ICE Futures Europe exchange after dropping 2.3% on Wednesday.

The market remains in a bullish structure, although it’s eased somewhat. The prompt timespread for Brent was 76 cents a barrel in backwardation -- where near-dated prices are more expensive than later-dated ones. That compares with 83 cents a week earlier.

See also: Oil Demand Is Surging, Just Not How You Might Think

U.S. gasoline stockpiles increased by more than 1 million barrels last week, according to the EIA. A Bloomberg survey had forecast a 2-million barrel draw. Distillate inventories climbed by 3.7 million barrels, while crude supplies fell by 7.9 million barrels.

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