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

CNBC

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.

Oil prices fall as U.S. fuel demand remains weak

CNBC

Reuters
KEY POINTS
  • Brent crude slipped 25 cents, or 0.7%, to $35.04 a barrel by 0334 GMT.
  • U.S. West Texas Intermediate crude was at $33.18 a barrel, down 53 cents, or 1.6%.
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 edged lower on Friday after U.S. inventory data showed lackluster fuel demand in the world’s largest oil consumer while worsening U.S.-China tensions weighed on global financial markets.

Brent crude slipped 25 cents, or 0.7%, to $35.04 a barrel by 0334 GMT and U.S. West Texas Intermediate crude was at $33.18 a barrel, down 53 cents, or 1.6%. Still, both contracts are set for a fifth weekly gain, helped by production cuts and optimism about demand recovery in other countries.

“The rally needs a breather. It has been four weeks of gains and the market needs to buy time for downstream prices to catch up,” OCBC economist Howie Lee said.

“Beyond the short term, the bullish momentum still looks rather intact.”

Thursday’s data from the Energy Information Administration showed that U.S.crude oil and distillate inventories rose sharply last week. Fuel demand remained slack even as various states lifted travel restrictions they had imposed to curb the coronavirus pandemic, analysts said.

“Memorial Day weekend did not bring U.S. motorists out in droves like many market bulls were hoping,” RBC Capital Markets analyst Christopher Louney said in a note.

Looking ahead, traders will be focusing on the outcome of talks on output cuts between members of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, in the second week of June.

Saudi Arabia and some OPEC members are considering extending record production cuts of 9.7 million barrels per day beyond June, but have yet to win support from Russia.

Oil prices rise to highest since March after U.S. stock drawdown

CNBC

Reuters
KEY POINTS
  • Brent crude futures for July delivery were trading up 62 cents, or 1.7%, at $36.37 per barrel at 0550 GMT, rising for a second day.
  • U.S. West Texas Intermediate (WTI) crude futures for July were up 61 cents, or 1.8%, at $34.10 a barrel, extending its gains into a sixth straight 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 rose on Thursday to their highest since March, as a drawdown of U.S. crude inventories and output cuts by major producers helped ease concerns about a supply glut, offsetting fears over the economic fallout from the Covid-19 epidemic.

Brent crude futures for July delivery were trading up 62 cents, or 1.7%, at $36.37 per barrel at 0550 GMT, rising for a second day.

U.S. West Texas Intermediate (WTI) crude futures for July were up 61 cents, or 1.8%, at $34.10 a barrel, extending its gains into a sixth straight session.

Both prices are at their highest since March 11.

U.S. crude inventories fell by 5 million barrels last week, against expectations in a Reuters poll for a 1.2 million-barrel rise, Energy Information Administration (EIA) data showed, while stocks at the Cushing, Oklahoma, delivery hub dropped by 5.6 million barrels.

“While signs that WTI storage pressures are abating is positive for prices, the latest report shows that the fall in stocks owes more to supply factors than growing product demand,” Capital Economics said in a note issued on Wednesday.

Prices have been boosted lately by shipping data showing the Organization of the Petroleum Exporting Countries (OPEC), Russia and other allies, a group known as OPEC+, are complying with their pledge to cut 9.7 million barrels per day (bpd).

OPEC itself is encouraged by the rally in prices and strong adherence to output cut pledges, its secretary general said, although sources say the group has not ruled out further steps to support the market.

“With supply being managed through the compliance among OPEC+ and demand recovering in North Asia, particularly in China, things are moving in the right direction in terms of supporting oil prices,” said Victor Shum, vice president of Energy Consulting at IHS Markit.

“If there is no surprise in a second or third wave in the virus attack and key members of OPEC+, Saudi Arabia in particular, are doing more cuts, we expect a gradual recovery will continue in the second half,” he said.

Physical crude markets are signalling a rapid shift from an enormous over-supply at the height of the coronavirus lockdowns in April towards an expected under-supply in the second half of the year.

Still, concerns about the lasting economic impact from the pandemic, especially in the United States, the world’s biggest oil consumer, have applied some downward pressure on prices.

Federal Reserve policymakers repeated a vow to take all steps necessary to shore up the U.S. economy, minutes from the U.S. central bank’s April 28-29 policy meeting released on Wednesday showed.

Oil extends gains amid signs of China demand pickup, global supply overhang fading

CNBC

Reuters
KEY POINTS
  • Brent crude was up 39 cents, or 1.3% at $31.52 a barrel by 0333 GMT, after rising nearly 7% on Thursday. The global benchmark is heading for a 1.8% gain on the week after rising for the previous two weeks.
  • West Texas Intermediate (WTI) oil was up 19 cents, or 0.7%, at $27.75 a barrel, having jumped 9% in the previous session. WTI is heading for a third weekly increase, up more than 12%.
An aerial view shows a cruise ship (L) and tanker vessel 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 shows a cruise ship (L) and tanker vessel 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 rose on Friday, extending day-earlier gains, as data showed demand for crude picking up in China after the easing of curbs to stem the coronavirus outbreak, boosting hopes that the global supply overhang may start to fade.

Brent crude was up 39 cents, or 1.3% at $31.52 a barrel by 0333 GMT, after rising nearly 7% on Thursday. The global benchmark is heading for a 1.8% gain on the week after rising for the previous two weeks.

West Texas Intermediate (WTI) oil was up 19 cents, or 0.7%, at $27.75 a barrel, having jumped 9% in the previous session. WTI is heading for a third weekly increase, up more than 12%.

Amid supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other major producers, bright spots are also emerging on the demand side. Data released on Friday showed China’s daily crude oil use rebounded in April as refineries ramped up operations.

Still the market mood remains far from euphoric, with the coronavirus pandemic far from over and new clusters emerging in some countries where lockdowns have been eased.

“The fundamentals in the market are clearly improving,” ING Research analysts said in a note. “But we still believe that in the near term, the upside is limited given that we are still in a surplus environment … There is plenty of inventory for the market to digest.”

There is optimism that stockpiles may be on the wane.

The International Energy Agency said it expects crude inventories to fall by about 5.5 million barrels per day (bpd) in the second half of this year.

Meanwhile U.S. crude inventories fell for the first time in 15 weeks, the Energy Information Administration said on Wednesday.

Output cuts will boost the trend towards lower inventories, but U.S. crude is unlikely to see strong gains.

“WTI crude will struggle to break above the $30 level until both the economic outlook improves for the U.S. and some of the downside risks ease,” said Edward Moya, senior market analyst at OANDA.

On the production side, OPEC and associated producers — collectively known as OPEC+ — had already agreed to cut output by a record of nearly 10 million bpd before Saudi Arabia this week extended its planned reductions for June, pledging to lower supply by nearly 5 million bpd.

Saudi Aramco, the world’s largest oil exporter, reduced the volume of crude it will supply to at least three buyers in Asia by as much as 30% for June, three sources with knowledge of the matter told Reuters on Thursday.

OPEC+ now wants to extend overall production cuts beyond May and June when the group next meets, sources told Reuters earlier this week.

Oil prices surge again US stockpiles grow less than feared, output cuts kick in

Reuters

KEY POINTS
  • Brent crude for July delivery, which started trading on Friday as the new front-month contract, was up $1.10, or 4.2%, at $27.58 a barrel by 0013 GMT. Brent gained 12% on Thursday.
  • U.S. crude for June delivery climbed $1.37, or 7.3%, to $20.21 a barrel, having gained 25% in the previous session.
GP: Oil storage tanks Carson CA
Oil-storage tanks are seen from above in Carson, California, April 25, 2020 after the price for crude plunged into negative territory for the first time in history on April 20.
Robyn Beck | AFP | Getty Images

Oil prices jumped on Friday, extending the previous session’s gains, buoyed by a lower-than-expected gain in U.S. crude inventories and the start of output cuts in a bid to offset a slump in fuel demand triggered by the coronavirus pandemic.

Brent crude for July delivery, which started trading on Friday as the new front-month contract, was up $1.10, or 4.2%, at $27.58 a barrel by 0013 GMT. Brent gained 12% on Thursday.

U.S. crude for June delivery climbed $1.37, or 7.3%, to $20.21 a barrel, having gained 25% in the previous session.

“This is a second straight week of inventory and product demand figures suggesting a bottoming of the U.S. market,” said Stephen Innes, chief market strategist at AxiCorp.

U.S. Energy Information Administration data showed crude inventories rose by 9 million barrels last week to 527.6 million barrels, less than the 10.6 million-barrel rise analysts had forecast in a Reuters poll.

The other significant support factor on Friday was the official start of output cuts agreed between the Organization of the Petroleum Exporting Countries (OPEC) and other major producers like Russia – a grouping known as OPEC+ – to counter sliding demand.

“OPEC+ quotas are due to kick in on Friday, suggesting short-term supply conditions have likely peaked,” AxiCorp’s Innes said.

The OPEC+ deal covers a cut in production of nearly 10 million barrels per day (bpd), a record level.

That, nevertheless, falls well short of the roughly 30 million bpd of demand that has evaporated amid the coronavirus pandemic as much of the world’s population remains under some form of economic and social lockdown.