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.

Brent oil rises to $40 amid hopes for output cuts, recovery

CNBC

Reuters
KEY POINTS
  • Brent crude futures for August rose 43 cents, or 1.1%, at $40 a barrel, by 0252 GMT. The contract climbed to as high as $40.42, the highest since March 6, after gaining 3.3% on Tuesday.
  • U.S. West Texas Intermediate (WTI) crude futures gained 68 cents, or 1.9%, at $37.49 a barrel. It rose to as much as $37.88, also the highest since March 6. The contract ended the previous session up 3.9%.
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 rose on Wednesday, with Brent at $40 for the first time since March, as optimism mounted that major producers will extend production cuts and a recovery from the coronavirus pandemic will spur fuel demand.

Brent crude futures for August rose 43 cents, or 1.1%, at $40 a barrel, by 0252 GMT. The contract climbed to as high as $40.42, the highest since March 6, after gaining 3.3% on Tuesday.

U.S. West Texas Intermediate (WTI) crude futures gained 68 cents, or 1.9%, at $37.49 a barrel. It rose to as much as $37.88, also the highest since March 6. The contract ended the previous session up 3.9%.

Both benchmarks have risen sharply in recent weeks from the lows of April, buoyed by a continuing recovery in China, the epicenter of the virus outbreak, while other economies are slowly opening up after lockdowns to contain its spread.

The Organization of the Petroleum Exporting Countries (OPEC) and other major producers including Russia, a group known as OPEC+, may extend production cuts of 9.7 million barrels per day (bpd), or about 10% of global output, into July or August, sources told Reuters.

The cuts are currently due to run through May and June, scaling back to a reduction of 7.7 million bpd from July to December, but Saudi Arabia has been pushing to keep the deeper cuts in place for longer.

“Even deeper cuts will speed up the process of rebalancing the market,” ING Economics said, noting the “market was already set to transition from surplus to deficit as we move into the second half of this year.”

With the date of the meeting not yet set and some calling for it to be early as this week, much remains up in the air, however.

But the demand picture is looking brighter as economies including China, the world’s second-biggest oil consumer, start to recover from the pandemic.

“As virus-related lockdown measures continue to be lifted, we expect that demand will gradually recover,” Capital Economics said in a note, estimating that global oil consumption will fall to just under 92 million bpd on average in 2020.

This compared with 100.2 million bpd in 2019, it said, before the pandemic swept through Europe and the United States, evaporating demand for everything from flying to trips to the dentist.

U.S. crude oil inventories fell by 483,000 barrels in the week to May 29, the American Petroleum Institute said on Tuesday. Gasoline and distillate fuel stockpiles rose.

Official government inventory data will be released later on Wednesday.

Those figures still show U.S. stockpiles remain high and are forecast to have risen for a second week in a row.

Oil drops as surprise U.S. stock build douses demand recovery hopes

CNBC

Reuters
KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude futures were down 4.4%, or $1.44 at $31.37 a barrel at 0402 GMT after slipping as much as 5% to a low of $31.14 earlier in the session.
  • Brent crude futures dropped 3.2%, or $1.10 to $33.64 per barrel.
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 slid for a second consecutive session on Thursday as U.S. industry data showed a steep and surprising build-up in crude stockpiles, dampening hopes of a smooth demand recovery as the world begins to ease its way out of coronavirus lockdowns.

The decline extended losses from Wednesday on uncertainty about Russia’s commitment to deep oil production cuts in the lead-up to a June 9 meeting of the Organization of the Petroleum Exporting Countries and its allies, dubbed OPEC+.

U.S. West Texas Intermediate (WTI) crude futures were down 4.4%, or $1.44 at $31.37 a barrel at 0402 GMT after slipping as much as 5% to a low of $31.14 earlier in the session.

Brent crude futures dropped 3.2%, or $1.10 to $33.64 per barrel.

“A surprise to consensus API (American Petroleum Institute)inventory build (data) and fear of Russia turning up production weighs on oil prices,” said Stephen Innes, chief global markets strategist at AxiCorp.

“As is often the case during a run-up up to an OPEC+ meeting, the focus is squarely on Russia’s commitment and understandably so as historically they have been the laggard within the OPEC+.”

Data from U.S. industry group API showed crude stocks rose by 8.7 million barrels in the week to May 22, compared with analysts’ expectations for a draw of 1.9 million barrels.

Gasoline stocks rose by 1.1 million barrels, more than 10 times the build analysts had expected, and stocks of diesel and heating oil rose by 6.9 million barrels, nearly four times as much as anticipated.

“It just indicates that demand recovery is progressing but it’s not strong enough yet to be really self-sustaining,” National Australia Bank’s head of commodity research, Lachlan Shaw said.

The market will be looking to see if data from the U.S. Energy Information Administration later on Thursday matches API.

With WTI holding above $30, OPEC+ will be closely watching to see whether U.S. oil shale oil producers, who have breakeven prices in the high $20 and low $30 dollar range, step up production.

Oil slips on demand worries, Hong Kong tensions

CNBC

Reuters
KEY POINTS
  • Brent crude futures fell 21 cents, or 0.6%, to $35.96 by 0120 GMT.
  • U.S. West Texas Intermediate (WTI) crude futures were down 31 cents, or 0.9%, at $34.04 a barrel.
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 fell on Wednesday on revived concerns over how quickly fuel demand will recover even as coronavirus lockdowns begin to ease in many countries, while U.S.-China tensions added to negative sentiment.

Brent crude futures fell 21 cents, or 0.6%, to $35.96 by 0120 GMT.

U.S. West Texas Intermediate (WTI) crude futures were down 31 cents, or 0.9%, at $34.04 a barrel.

The Organization of the Petroleum Exporting Countries and producers including Russia, a grouping referred to as OPEC+, are cutting their output by nearly 10 million barrels per day in May-June to buttress prices as measures to rein in the coronavirus pandemic have slashed fuel demand.

In the United States, where some states are opening up after lockdowns, optimism about an increase in demand has supported sentiment, but the recovery is fragile, analysts caution. The Memorial Day holiday just passed typically heralds the start of the peak U.S. demand season.

“Early estimates suggest gasoline demand is down by as much as 30% from last year as people stay close to home,” ANZ Research said in a note.

Some analysts and banks are predicting a balanced oil market as soon as June, but that could be too optimistic, according to Eurasia Group.

There is … a significant risk of repeat outbreaks and lockdowns. Even without them, some restrictions — especially on aviation — will remain in place,” it said in a note.

Still as U.S. demand picks up, however slowly, there are signs that inventories are falling. U.S. crude inventories are forecast to have fallen for a third week last week, according a Reuters poll of analysts.

Prices were also under pressure after U.S. President Donald Trump’s economic adviser, Larry Kudlow, said China was making “a big mistake” with national security legislation on Hong Kong.

Beijing’s proposed security law would reduce the territory’s separate legal status. China’s parliament is expected to approve it by Thursday.

Oil prices rise on supply cut hopes, easing of coronavirus lockdowns

CNBC

Reuters
KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude futures gained 3.2%, or $1.06, to $34.31 a barrel as of 0429 GMT, just off an intra-day high of $34.33. There was no WTI settlement on Monday because of the U.S. Memorial Day holiday.
  • Brent crude futures were up nearly 1.7%, or 59 cents to $36.12, adding to a 1.1% gain on Monday in thin holiday trading.
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.
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 climbed on Tuesday, boosted by increasing faith in the market that producers will to stick to commitments to cut crude supply while demand picks up with more cars back on the road as coronavirus lockdowns are eased around the world.

U.S. West Texas Intermediate (WTI) crude futures gained 3.2%, or $1.06, to $34.31 a barrel as of 0429 GMT, just off an intra-day high of $34.33. There was no WTI settlement on Monday because of the U.S. Memorial Day holiday.

Brent crude futures were up nearly 1.7%, or 59 cents to $36.12, adding to a 1.1% gain on Monday in thin holiday trading.

The market was buoyed by comments from Russia reporting its oil output had nearly dropped to its target of 8.5 million barrels per day (bpd) for May and June under its supply cut deal with the Organization of the Petroleum Exporting Countries (OPEC) and other leading producers, a grouping known as OPEC+.

“There’s definitely a feeling those cuts have come through as well as you could expect,” said Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group.

OPEC+ countries are set to meet again in early June to discuss maintaining their supply cuts to shore up prices, which are still down around 45% since the start of the year. The big producers agreed in April to cut output by nearly 10 million bpd for May and June.

Russia’s energy ministry on Monday quoted minister Alexander Novak as saying a rise in fuel demand should help cut the current global surplus of around 7-12 million bpd by June or July.

“With economies restarting, the focus definitely is on the improvement in the fundamentals, rather than what seemed like a complete collapse in demand only a few weeks ago,” said strategist Hynes.

Meanwhile data from energy services firm Baker Hughes showed the United States’ rig count hitting a record low of 318 in the week to May 22, also indicating lower output in the future.