Oil Futures Lower on Slowing Demand ahead of Expirations


   
   CRANBURY, N.J. (DTN) -- For the final session of the second quarter, oil 
futures nearest delivery on the New York Mercantile Exchange and Brent crude on 
the Intercontinental Exchange were lower for a second day early Thursday amid 
slowing fuel demand in the United States while OPEC+ is expected to agree to a 
648,000 bpd increase in crude oil production for August.

   Meeting by way of videoconference this morning, OPEC+ is set to return all 
of the production it cut in the second quarter 2020 in response to lost demand 
during COVID-19 pandemic lockdowns. While the large increase in output by the 
producer group is bearish, OPEC+ is estimated to be underproducing its quota by 
2.8 million bpd. Today's expected agreement to further lift output is seen 
widening the deficit amid a lack of spare capacity.

   Earlier this week during the Group of Seven meeting in Germany, French 
President Emmanuel Macron was overheard telling U.S. President Joe Biden United 
Arab Emirates had no additional spare capacity and that Saudi Arabia could only 
lift output by 150,000 bpd over the next six months, underpinning August Brent 
crude's push above $120 bbl on Wednesday.

   UAE oil minister Suhail Al Mazrouei was quick to note UAE would meet its 
quota, which will be 3.17 million bpd should OPEC+ agree to the August 
production hike. UAE produced 3.046 million bpd in May according to OPEC, 
citing secondary sources. UAE's production quota for July is 3.127 million bpd.

   Saudi Arabia's July production quota is 10.833 million bpd, with an 
agreement by OPEC+ today to lift the kingdom's quota to 11 million bpd, a 
production rate the Saudi's have only reached twice -- in November 2018 and 
April 2020. In May, Suadi oil production was estimated by secondary sources at 
10.424 million bpd, although the Saudis self-reported an output rate of 10.538 
million bpd.

   Saudi Arabia previously said their production capacity was above 12 million 
bpd and UAE said they could produce 4 million bpd. Amid the tight oil market, 
Western nations led by the United States are pushing for Saudi Arabia and UAE 
to lift output well above OPEC+ quotas to offset sanctioned Russian oil, 
leading to analysts questioning if the two countries actually have the spare 
capacity. On Wednesday, the OPEC+ Joint Technical Committee released a document 
that said the global oil market surplus is likely to narrow to 1 million bpd by 
the end of the year from their previous estimate of 1.4 million bpd.

   Offsetting narrowing spare capacity is weakening fuel demand, with data 
released Wednesday by the Energy Information Administration showing building 
inventory of gasoline and distillate fuels for the week ending June 24 while 
implied demand for distillate fuels tumbled to an 11-week low at 3.568 million 
bpd.

   Easing demand for distillate fuels coincides with slowing economic growth, 
with Atlanta Federal Reserve Bank's GDPNow tracker showing second quarter U.S. 
economic growth at a modest 0.3% following a 1.6% contraction during the first 
quarter reported Wednesday by the Bureau of Economic Analysis. Other regional 
Federal Reserve Banks, including Kansas City and Dallas, have found 
manufacturing activity in their regions slowing sharply.

   EIA shows days of forward supply for distillate fuels increased to 30.6 as 
of June 24, a more than five-month high. Gasoline days of forward supply 
increased for a second week to a five-week high 24.8 days ahead of the July 4th 
holiday, when AAA has forecasted record road travel of 42 million.

   NYMEX July RBOB futures are down more than 12.5cts to $3.7015 gallon ahead 
of expiration this afternoon, with the August contract trading at a roughly 
9cts discount to the expiring contract. NYMEX July ULSD futures are about 2cts 
lower near $4.0165 gallon, with the August contract about 7cts below July 
delivery.

   NYMEX August West Texas Intermediate futures were $1.30 lower at $108.50 
bbl. ICE August Brent crude is down $0.75 near $115.50 ahead of expiration 
later today, with the September contract trading at a roughly $3 discount.

    

    

   Brian L. Milne, 1.402.255.8020, brian.milne@dtn.com, www.dtn.com.




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