Crude oil prices drop on doubts over output cuts, swelling US fuel inventories

NEW YORK: Oil prices fell on Thursday on doubts over the ability of top crude producers to agree to extend record output cuts, heightened by worries over a build in US fuel inventories.

Brent crude futures were down 48 cents, or 1.2 per cent, at $39.31 a barrel by 11:17 a.m. ET (1517 GMT). US West Texas Intermediate (WTI) crude futures dropped 74 cents, or 2 per cent, to $36.55.

Saudi Arabia and Russia, two of the world’s biggest oil producers, want to extend cuts of 9.7 million barrels per day (bpd) that major producers agreed to in April. But a suggestion by the Organization of the Petroleum Exporting Countries’ current president Algeria to meet on Thursday was delayed amid talks about poor compliance by some producers.

OPEC and allies led by Russia, a group known as OPEC+, could still hold a ministerial video conference this week if Iraq and others which have not fully complied with existing supply cuts agree to boost their adherence, three OPEC+ sources told Reuters.

Saudi Arabia, Kuwait and the United Arab Emirates are not planning to extend voluntary additional output cuts of 1.18 million bpd after June, indicating that crude supply could rise next month regardless of any OPEC+ decision.

“OPEC appears ‘damned if they do and damned if they don’t’ with regard to extended near term production reductions,” Jim Ritterbusch, president of Ritterbusch and Associates, said.

“Any decision to forgo any extension of current cuts would easily unleash a near term selling spree while an agreement to extend cuts beyond next month would have longer term bearish implications as upward adjustments to third quarter shale production forecasts would likely be required.”

Concerns about a resurgence of US shale, which is already showing signs of revival, was one reason Moscow and Russia only backed prolonging cuts into July rather than agreeing a longer extension, sources briefed on OPEC+ talks have said.

Meanwhile, US government data on Wednesday showed gasoline stocks rose by 2.8 million barrels last week, while distillate inventories surged 9.9 million barrels, nearly quadruple expectations, as fuel demand remains impaired due to the coronavirus pandemic. Striking a bullish note, however, Russia’s Energy Minister said the oil market in July could face a shortage of 3-5 million bpd, Interfax news agency reported.