On Thursday, oil prices went down on the back of the concerns regarding the output cuts pact from the Organization of Petroleum Exporting Countries and its non-member producer allies (OPEC+) and the surging US distillate stockpiles.
At 06.52 AM GMT, Brent crude oil futures edged down by 1.18% or 47 cents to USD39.32/barrel while the US WTI crude futures dipped by 1.8% or 67 cents to USD36.62/barrel.
Even when OPEC+ has agreed to extend the 9.7 million bpd output cuts until end-July, it could not reach an agreement on holding a meeting today to discuss the cuts. OPEC sources said that the meeting would be conditional on countries that have not complied with their targets so far deepening their cuts.
Economist Lachlan Shaw of National Australia Bank analyzed that the oil market has concluded that it is now more difficult for OPEC+ countries to reach the deal.
Moreover, major Gulf producers Saudi Arabia, Kuwait, and the UAE have stated that they have no plan to extend the voluntary additional output cuts on 1.18 million bpd after June. This would mean that crude supply would increase starting July even with OPEC+ deal.
Another factor dragging down oil prices would be the significant jump in the US distillate inventory.
According to the US Energy Information Administration (EIA), gasoline stockpiles climbed by 2.8 million barrels in the week ended May 29. However, the distillate inventory soared by 9.9 million barrels, nearly four times more than expected.
Over the last four weeks, the overall demand for diesel and fuels slumped by 13% year-on-year. However, even when gasoline product supplies went up last week, the four-week average still was 23% below the same period last year.
Shaw commented, “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.”
