Oil falls as U.S. inventory rise revives oversupply concerns

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Reuters
KEY POINTS
  • Brent crude futures fell 59 cents, or 1.4%, to $40.59 a barrel by 0326 GMT after gaining nearly 1% on Tuesday.
  • West Texas Intermediate (WTI) futures declined 72 cents, or 1.9%, to $38.22 a barrel, having risen about 2% in the previous session.
An aerial drone view of a crude oil storage facility on April 23, 2020 in Cushing, Oklahoma.
An aerial drone view of a crude oil storage facility on April 23, 2020 in Cushing, Oklahoma.
Tom Pennington | Getty Images

Oil prices fell on Wednesday after data showed a rise in crude and fuel stockpiles in the United States, reviving concerns about oversupply and falling fuel demand in the world’s largest crude consumer amid the coronavirus outbreak.

Brent crude futures fell 59 cents, or 1.4%, to $40.59 a barrel by 0326 GMT after gaining nearly 1% on Tuesday.

West Texas Intermediate (WTI) futures declined 72 cents, or 1.9%, to $38.22 a barrel, having risen about 2% in the previous session.

Both contracts rose to their highest in three months on Monday but some analysts think the market has risen too far, too fast as the coronavirus pandemic sweeps across the world with new infections posting daily highs.

“While oil has rallied substantially last month, the market’s recovery from an historic crash remains fragile, with higher prices likely prompting producers to turn the taps back on even as the pandemic continues to quash energy demand,” said Avtar Sandu, senior manager commodities at Phillip Futures.

U.S. crude inventories climbed 8.4 million barrels in the week to June 5, API data showed, while a Reuters poll of analysts had indicated a draw of 1.7 million barrels.

Distillate fuel stockpiles, including diesel fuel and heating oil, rose by 4.3 million barrels, outpacing expectations for a 3 million barrel increase.

Official government figures on stockpiles from the Energy Information Administration are due later on Wednesday.

While layoffs fell in the U.S. in April, hiring hit a record low indicating it will take many years for a recovery in the labor market in the world’s biggest economy.

In Japan, the world’s second-biggest economy, machinery orders slumped in April at the fastest pace in two years, according to data released on Wednesday.

Still, the refinery run rate in the world’s fourth-biggest importer of oil, rose off more than 10-year lows last week to 54.5%, as economic activity picked up after the Japanese government lifted a state of emergency in late May.

Prices have been supported in recent weeks as the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, a group known as OPEC+, put in place record production cuts that they extended on Saturday.

But Saudi Arabia, Kuwait and the United Arab Emirates said they would not continue further voluntary reductions of 1.18 million barrels per day.

Oil prices rise as easing of lockdowns spurs fuel demand hopes

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Reuters
KEY POINTS
  • Brent crude futures rose 0.3%, or 14 cents, by 0435 GMT to $40.94 a barrel. The benchmark contract had fallen $1.50 on Monday, snapping a seven-day streak of gains.
  • U.S. West Texas Intermediate (WTI) crude futures rose 0.7%, or 26 cents, to $38.45 a barrel, after dropping by $1.36 on Monday.
A kayaker passes in front of an offshore oil platform in the Guanabara Bay in Niteroi, Brazil, Saturday, Feb. 1, 2020.
A kayaker passes in front of an offshore oil platform in the Guanabara Bay in Niteroi, Brazil, Saturday, Feb. 1, 2020.
Dado Galdieri | Bloomberg | Getty Images

Oil prices climbed on Tuesday as the easing of coronavirus lockdown measures across the globe lifted trader hopes for a swift recovery in demand, though gains were capped by the specter of persistent oversupply in the market.

Brent crude futures rose 0.3%, or 14 cents, by 0435 GMT to $40.94 a barrel. The benchmark contract had fallen $1.50 on Monday, snapping a seven-day streak of gains.

U.S. West Texas Intermediate (WTI) crude futures rose 0.7%, or 26 cents, to $38.45 a barrel, after dropping by $1.36 on Monday.

“With Brent holding very nicely above $40, there’s talk among traders that WTI will test that level soon,” said Michael McCarthy, chief market strategist at CMC Markets.

Goldman Sachs has also raised its 2020 oil price forecasts, with Brent now seen at $40.40 a barrel and WTI at $36 a barrel.

Tuesday’s gains came as New York, the U.S. city hardest hit by the novel coronavirus outbreak, began reopening on Monday after about three months, potentially spurring fuel demand.

U.S. crude and gasoline inventories are estimated to have fallen by 1.5 million barrels and about 100,000 barrels respectively in the week to June 5, a preliminary Reuters poll showed ahead of a report from the American Petroleum Institute industry group later on Tuesday.

However distillate inventories, which include diesel and heating oil, were seen rising by 2.9 million barrels.

“You’ve got demand recovering gradually but steadily,” said Lachlan Shaw, head of commodity research at National Australia Bank. “However there’s still massive excess supply, so OPEC and friends need to control barrels coming into the market.”

The Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, a grouping known as OPEC+, on Saturday agreed a one-month extension through July of a record 9.7 million barrels per day output cut.

However, Saudi Arabia said on Monday the kingdom and its allies Kuwait and the United Arab Emirates would not extend an additional 1.18 million bpd in cuts on top of the OPEC+ cuts in July.

Meanwhile Libya’s National Oil Corporation (NOC) told employees to shut its Sharara oil field just hours after maintenance operations started as an “armed force” had entered the site.

“It seems pricing in consistent Libya production might be premature,” said Edward Moya of OANDA. “The oil market … could easily go back into deeply oversupplied territory, so any threats to production should help stabilise prices.”

Oil prices inch higher, 1-month supply cut extension falls short of market hopes

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Reuters
KEY POINTS
  • Brent crude had climbed as high as $43.41 a barrel but by 0239 GMT was trading up just 21 cents, or 0.5%, at $42.51.
  • U.S. West Texas Intermediate (WTI) crude rose 2 cents, or 0.05%, to $39.57 a barrel, after earlier touching $40.44 earlier.
An offshore oil platform is seen with a tanker in the distance on April 20, 2020 in Huntington Beach, California.
An offshore oil platform is seen with a tanker in the distance on April 20, 2020 in Huntington Beach, California.
Michael Heiman | Getty Images

Oil crept higher on Monday, but gave up big early gains as optimism over major crude producers’ deal to extend record output cuts gave way to disappointment that the accord didn’t extend beyond the end of July.

Brent crude had climbed as high as $43.41 a barrel but by 0239 GMT was trading up just 21 cents, or 0.5%, at $42.51. U.S. West Texas Intermediate (WTI) crude rose 2 cents, or 0.05%, to $39.57 a barrel, after earlier touching $40.44 earlier. Both hit their highest since March 6.

Since the start of April Brent has nearly doubled, propped up by the unprecedented production cut of 9.7 million barrels per day — nearly 10% of global supplies — agreed in April by the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, collectively known as OPEC+.

On Saturday OPEC+ agreed to extend the deal by a third month through end-July. Following the deal, world’s top exporter Saudi Arabia sharply raised its monthly crude prices for July.

But Howie Lee, economist at Singapore bank OCBC, said the one-month extension had fallen short of market hopes for a three-month deal. He said both benchmarks would require stronger bullish factors to propel prices back to where they were before March 6, when prices crashed after OPEC and Russia initially failed to reach an agreement to extend output cuts into April.

“It’s a big gap there. You need a strong conviction to go from $43 to pre-crash levels,” Lee said, referring to Brent being above $50 a barrel before the March crash.

Still, the current deal is expected to lead the market into a supply deficit by October, underpinning prices in the longer run, he added.

Compliance with the agreement among OPEC members such as Iraq and Nigeria also remains an issue.

“While the errant producers such as Iraq and Nigeria have vowed to reach 100% conformity and compensate for prior underperformance, we still think they will likely continue to have some commitment issues over the course of the summer,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

“The potential return of Libyan output could also cause considerable challenges for the OPEC leadership.”

In southwestern Libya, two major oilfields have reopened after months of a blockade that shut off most of the country’s production.

Even as oil prices recovered, they are still well below the costs of most U.S. shale producers, leading to shutdowns, layoffs and cost-cutting in the world’s largest producer.

The number of operating U.S. oil and natural gas rigs fell to a record low for a fifth week in a row in the week to June 5, according to data from Baker Hughes.

Nearly 30% of U.S. offshore oil output was also shut on Friday as tropical storm Cristobal entered the Gulf of Mexico.

Higher oil prices could invite the reinstatement of supply, notably U.S. shale, that was planned to be shut-in in June and July, BNP Paribas’ Harry Tchilingurian said.

“OPEC+ faces a catch-22 situation,” he said. “The resumption of output … may moderate the pace of rebalancing of the oil market.”

Oil dips on uncertainty over producers’ commitment to output cuts

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Reuters
KEY POINTS
  • Brent crude futures were down 8 cents, or 0.2%, at $39.91 a barrel as of 0106 GMT.
  • U.S. West Texas Intermediate (WTI) crude futures fell 15 cents, or 0.4%, to $37.26 a barrel.
An aerial view of oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
An aerial view of oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
Mario Tama | Getty Images

Oil prices eased slightly on Friday as markets wait to see whether major producers will commit to an extension of record production cuts to support oil prices.

Brent crude futures were down 8 cents, or 0.2%, at $39.91 a barrel as of 0106 GMT and U.S. West Texas Intermediate (WTI) crude futures fell 15 cents, or 0.4%, to $37.26 a barrel.

Still both benchmarks are set for a sixth weekly gain on the back of output cuts and signs of improving fuel demand as countries begin to ease restrictions to prevent the spread of the coronavirus.

WTI is up nearly 5%, while Brent has risen about 13% OPEC+ will meet on Saturday to discuss extending output cuts, Algeria’s Ennahar TV channel reported on Friday citing an OPEC source. Three OPEC+ sources said earlier a ministerial video conference could be held this week, should Iraq and others agree to boost their adherence to existing supply cuts.

The Organization of the Petroleum Exporting Countries and allies led by Russia, a grouping known as OPEC+, had been expected to meet on June 4 to discuss extending output cuts, but the meeting was delayed amid talks over poor compliance by some producers.

“The oil group is struggling to find consensus around extending deep output cuts,” ANZ Research said in a note.

“The growing fear is that not only will a deal to extend the deep cuts not be reached, but producers may even relax their current over-compliance. This would ultimately see output rise in coming weeks.”

Saudi Arabia and Russia, two of the world’s biggest oil producers, want to extend output cuts of 9.7 million barrels per day (bpd) into July.

If OPEC+ fails to agree to roll over the current output curbs, that would mean the curbs could scale back to a cut of 7.7 million bpd from July through December as earlier agreed.

Oil prices fall on doubts over output cuts, surging U.S. diesel inventories

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Reuters
KEY POINTS
  • Brent crude futures fell 1.46%, or 58 cents, to $39.21 a barrel as of 0459 GMT.
  • U.S. West Texas Intermediate (WTI) crude futures slid 1.98%, or 74 cents, to $36.55 a barrel.
An aerial view of oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
An aerial view of oil tankers anchored near the ports of Long Beach and Los Angeles amid the coronavirus pandemic on April 28, 2020 off the coast of Long Beach, California.
Mario Tama | Getty Images

Oil prices dropped on Thursday, reversing gains in the previous session, on concern over whether major crude producers will be able to agree to extend record output cuts, heightened by worries over a huge build in U.S. distillate inventories.

Brent crude futures fell 1.46%, or 58 cents, to $39.21 a barrel as of 0459 GMT, while U.S. West Texas Intermediate (WTI) crude futures slid 1.98%, or 74 cents, to $36.55 a barrel.

Saudi Arabia and Russia, two of the world’s biggest oil producers, have agreed to support extending into July the 9.7 million barrels per day (bpd) in supply cuts backed in April by the OPEC+ group, comprised of the Organization of the Petroleum Exporting Countries and other major producers. [nL8N2DG2XK]

But they failed to agree on holding an OPEC+ meeting on Thursday to discuss the cuts, with OPEC sources saying it would be conditional on countries that have not complied with their targets so far deepening their cuts.

“The market has taken a look at that and said it’s getting more complicated to get that deal over the line,” said Lachlan Shaw, head of commodity research at National Australia Bank.

That would imply OPEC+ would go back to what they agreed in April, which was to ease their supply cuts to 7.7 million bpd from July, he said.

Further, Saudi Arabia and other Gulf producers Kuwait and the United Arab Emirates are not planning to extend voluntary additional output cuts of 1.18 million bpd after June, indicating crude supply could rise next month no matter what OPEC+ decides.

The huge build in distillate inventory in the United States, the world’s biggest oil user, also weighed on prices, said CMC Markets’ chief market strategist Michael McCarthy.

U.S. Energy Information Administration data on Wednesday showed gasoline stocks rose by 2.8 million barrels, nearly triple what analysts had expected, while distillate stocks rose by 9.9 million barrels, or nearly four times more than expected.

Overall demand for diesel and similar fuels is down 13% from the year-ago period over the last four weeks. Gasoline product supplied, a proxy for demand, picked up last week, but the four-week average still shows a 23% drop from the year-ago period.

“It shows the recovery in gasoline and distillate demand is not V-shaped. It just reinforces that we’ve had this initial (price) recovery driven by supply side discipline,” Shaw said.