Oil falls as OPEC+ plans to raise output while virus cases increase.
Oil prices fell 1% on Thursday after OPEC+ agreed to ease record supply curbs and as new infections of the novel coronavirus continue to surge in the United States.
Both benchmark Brent and U.S. crude have remained above $40 a barrel for the last several weeks. The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, lowered daily supply beginning in May and demand worldwide has rebounding, helping prices to stabilize.
Fears of a second wave of cases of COVID-19 – led by the United States – are keeping the rally in check. Nearly 600,000 people worldwide have died of the disease, according to a Reuters tally.
Brent LCOc1 fell 42 cents, or 1%, to settle at $43.37 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 fell 45 cents, or 1.1%, to settle at $40.75 a barrel.
Both benchmarks rose 2% on Wednesday following a sharp drawdown in U.S. crude inventories. [EIA/S]
International Energy Agency Executive Director Fatih Birol said on Wednesday that global oil markets are rebalancing, with prices of about $40 per barrel expected in coming months.
OPEC+ agreed on Wednesday to scale back oil production cuts from August, reducing cuts by 2 million barrels per day to 7.7 million bpd through December.
“Nobody could really expect OPEC+ to keep the 9.7 million bpd curtailments into August,” said Rystad Energy’s senior oil markets analyst Paola Rodriguez-Masiu. “Boosting output by 2 million bpd is not little, but the demand recovery, even though a little slower than expected, justifies it.”
In a sign of recovery, China’s refinery daily crude oil throughput in June climbed 9% from a year earlier, reaching its highest level on record due to rising consumption.
Today Friday Oil prices opened unchanged but soon began to edge downward, with trading marked by growing uncertainty about global recovery in fuel demand as new COVID-19 cases surge in several countries just as major producers get set to loosen production curbs.
The two benchmark contracts fell 1% on Thursday after the Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, agreed to trim record supply cuts of 9.7 million barrels per day (bpd) imposed earlier this year by some 2 million bpd from August.
But actual output additions will be closer to 1.1 million bpd, as countries like Iraq – which overproduced compared with their commitments to cut supply in May through July – agreed to bigger reductions in August and September.
Vivek Dhar, commodities analyst at Commonwealth Bank of Australia, said the market took some heart with the agreement for some to compensate for previous non-compliance with commitments at a time when there is uncertainty over demand growth.
“They’re taking those precautions. That gives the market confidence that OPEC+ is looking quite closely at those conditions to make sure they don’t push the market in the wrong direction,” he said.
Analysts expect the market to remain in the $40-45 a barrel range, with the looming return of some U.S. supply and uncertainty over fuel demand as new lockdowns may be needed to curb the resurgence of COVID-19 cases.
“The problem with the market right now is prices have got to a level where we’re concerned U.S. supply is going to come back,” Dhar said.
Oil Future close 16th July, 2020
Brent crude: $ 43.37 (-0.42) /brl FM delivery Sep
Light crude (WTI): $ 40.75 (-0.45) /brl FM delivery Aug
Gasoil ARA; $ 369.00 (-2.00) /mton FM delivery Aug
NY Harbor Ulsd: $ 378.02 (-5.20) /mton FM delivery Aug
Expect bunker price to edge downward based Oil Future close last night.
Fuel Oil prices down 2-3 usd/mton. MGO down 2 usd/mton and NY Harbor Ulsd
down 5 usd/mton.
The reason for downward trend is again the Covid 19 situation in the U.S., which is getting worse. Expect current trend to hold all day unless something exceptional would occur.
Oil Futures at GMT 05.34, Brent and WTI are trading downwards $-0.14 and $-0.11.