Oil prices fall on doubts over output cuts, surging U.S. diesel inventories

Daniel Fowler
June 5, 2020

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Thursday, reversing some of yesterday's gains, on concerns over whether the major global producers known as OPEC+ will be able to agree to extend record production cuts and increasing concerns over a huge build in U.S. distillate inventories.

Under its current agreement, OPEC+ is set to taper its supply curbs to 7.7 million barrels a day from July 1, compared with 9.7 million barrels a day in May.

The main objective of the two meetings will be to extend the 9.7 million barrels per day of OPEC+ oil production cuts beyond June 30 when it expires.

Saudi Arabia's energy minister says the outcome will be "hopefully successful".

Encouraged by signs of recovery in the market, OPEC+ is considering extending the current level of cut beyond June.

Saudi Arabia and Russian Federation, two of the world's biggest oil producers, have agreed to support extending into July the 9.7 million barrels per day (bpd) in supply cuts backed in April by the OPEC+ group, comprised of the Organization of the Petroleum Exporting Countries and other major producers, according to Reuters. Prices bounced higher on the news.

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OPEC and its allies will "extend the existing production cuts by another month", Andrew Lipow, president of the Houston-based oil consulting firm Lipow Associates, told FOX Business. "Iraq has agreed to the pledge to improve its full compliance with the cuts".

It was not clear how exactly Iraq would agree with oil majors working on its territory to reduce output further. But the recovery remains tenuous, with USA producers signaling they're already prepared to re-open wells and oil consumption still soft in most of the world.

Nigeria said in a statement earlier this week it had made "concerted efforts to adhere to [its cut] commitment and will continue to do so unequivocally".

Mexico, which resisted pressure by other OPEC+ members to cut output by 23 percent or 400,000 bpd, agreed to cut output by 100,000 bpd only for May and June at the April meeting. This is probably because OPEC didn't say there would be no extension, it only said there would be no meeting.

In case you missed it, the OPEC and OPEC+ meetings have been brought forward to 6 June (tomorrow) and will take place at 1200 and 1400 GMT respectively.

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