WTI,Brent Turn Lower as Noncompliance Delays OPEC+ Meeting
WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York
Mercantile Exchange and Brent crude on the Intercontinental Exchange turned
lower Thursday morning, with Saudi Arabia and Russia calling off a policy
meeting scheduled for today when producers were expected to agree to an
extension of their accord cutting 9.7 million bpd in output beyond June, giving
laggard members two more weeks to deepen their cuts.
Earlier reports indicated both producers reached a tentative agreement to
extend supply cuts for another month, although they seemed to have failed to
agree on a date to formalize the agreement. Noncompliance issues from members
including Nigeria, Iraq and Kazakhstan are seen to have cause the delay of
their conference for two more weeks, with Russia insisting the laggards need to
share the burden of deeper cuts with the rest of the group. Nigeria, the
largest crude producer in Africa, delivered less than 20% of their pledged cut
in May, raising doubts over the country's commitment to lower its production.
Against this backdrop, Saudi Arabia, Kuwait and the United Arab Emirates do
not plan to extend their voluntary additional cuts of 1.18 million bpd beyond
June, according to sources interviewed by Wall Street Journal.
OPEC+ members said they were confident oil demand would recover
faster-than-expected this summer, citing strong mobility trends in western
Europe and the United States. The International Energy Agency revised its
demand estimates up by 3.2 million bpd in the second quarter.
Russian Energy Minister Alexander Novak said on Thursday that global oil
demand recovered by 5 to 7 million bpd in May from April, although is down
about 21 million bpd from the February levels.
"Thanks to OPEC+ output cuts of almost 10 million bpd and "organic" declines
from other producers of 3.5-4 mln bpd, the imbalance has declined to 7 million
bpd," said Novak.
Under the current OPEC+ deal, supply cuts are set to ease to 7.7 million bpd
in July, followed by additional tapering at the start of 2021.
Demand recovery may not be as smooth as some OPEC members hope for, however.
U.S. inventory data showed Wednesday refined fuel stockpiles jumped a massive
12.7 million bbl during the final week of May, with 9.9 million bbl of that
increase occurring in distillate stockpiles. Demand for distillates are
expected to stay depressed for months now as the economy slowly reemerges from
lockdown. Distillate fuels are mostly used in manufacturing, freight
transportation, farming and mining, with the volume of distillates supplied to
the domestic market, a proxy for demand, nearly 14% below the same point a year
In this light, investors are carefully monitoring employment data in the
United States to identify the shape of the economic recovery in the coming
months. Data on U.S. private payrolls showed fewer job losses than expected.
The U.S. private sector shed 2.76 million jobs in May, according to ADP
compared with expectations of 8.66 million.
Initial jobless claims due out 8:30 AM ET are expected to show 1.790 million
Americans filed for unemployment for the first time last week, down from 2.123
million in the prior week.
In early trading, NYMEX West Texas Intermediate July futures declined $0.52
to $36.74 bbl and Brent crude for August delivery traded near $39 bbl. NYMEX
RBOB July futures is up, trading near a 12-week high $1.1218 gallon, while
NYMEX ULSD futures traded little changed at $1.0621 gallon.
Liubov Georges, 1.646.359.4088, email@example.com, www.dtn.com.
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