Oil prices rose on Wednesday, as Saudi Arabia’s surprise pledge over the weekend to deepen production cuts overshadowed weak Chinese export data and rising US fuel inventories.
Brent crude futures rose 36 cents, or 0.5 percent, to $76.65 a barrel, while US West Texas Intermediate crude futures rose 37 cents, or 0.5 percent, to $72.11.
Both benchmark crudes jumped more than a dollar on Monday after Saudi Arabia’s decision over the weekend to cut output by one million bpd to 9 million bpd in July.
Analysts said: “Under the current situation, the oil market is on the cusp of a massive deficit. “Additional Saudi cuts are expected to deepen the market deficit to more than 3 million barrels per day in July by some estimates.” Prices fell earlier in the session on weak Chinese economic data and rising US fuel inventories.
China’s exports contracted much faster than expected in May, and imports fell, albeit at a slower pace, as manufacturers struggled to find demand abroad and domestic consumption remained sluggish.
Wednesday’s data also showed crude oil imports to China, the world’s biggest oil importer, rose to the third-highest monthly level in May as refiners built inventories.
A note from JPMorgan showed that the country’s crude oil futures cover has risen, suggesting that refiners have not raised processing rates but are instead stockpiling oil. Meanwhile, US gasoline inventories rose by about 2.4 million barrels, and distillate inventories rose by about 4.5 million barrels in the week ended June 2, market sources said on Tuesday, citing figures from the American Petroleum Institute.
Oil prices rise on anticipation of OPEC+ meeting and Kazakhstan production cuts
Eastern US Brent crude futures rose $1.88, or 2.4 percent, to $81.86 a barrel. US West Texas Intermediate crude gained $1.84, or 2.5%, to $76.70. OPEC+, the Organization of the Petroleum Exporting Countries and allies including Russia are due to hold an online ministerial meeting on Thursday to discuss production targets for 2024. Four OPEC+ sources said the talks would be difficult and the previous deal could be extended rather than deeper production cuts.
The market fell last week when OPEC+ delayed the original date of its meeting to settle differences over production targets for African producers.
Analysts in Chicago, said: “Even with the disagreement, the probability of keeping the deal the same for another month remains high.” Carsten Fritsch of Commerzbank said a possible compromise could involve Angola and Nigeria accepting output cut targets for a few months if targets for other countries were similarly reduced. “According to delegates, Saudi Arabia is demanding lower production quotas than other OPEC+ countries. While Kuwait has indicated that it would be willing to do so, some countries seem to resist any such move.
He added that the UAE is likely to oppose this, given that its production target for 2024 was increased at its request when OPEC+ held its previous meeting in early June.
Oil also found support from a weaker dollar, an expected drop in US crude inventories and lower Kazakhstan’s production. Kazakhstan’s largest oil fields have cut their daily oil production by 56 percent.
Four analysts polled estimated this the latest round of weekly US supply reports would show crude inventories falling by about two million barrels. The first of two reports is due this week from the American Petroleum Institute.
Speculation to extend oil production restrictions until the first quarter of 2024
Crude oil traders have largely taken into account that the group’s leaders, Saudi Arabia and Russia, will extend additional supply restrictions of 1.3 million barrels per day until the first quarter of 2024. Many are counting on more robust action from the broader coalition.
Analysts said in a report on Monday: “With fundamentals falling and market sentiment falling, OPEC+ may need to announce another official cut.” They added that anything less than a cut of one million barrels per day could push prices to a low of $70.
As part of the deal agreed in June, the UAE was granted the right to modestly increase production in January in order to deploy the latest additions in capacity. It is unclear whether there is any pressure now on Abu Dhabi to abandon this support in order to support deteriorating markets.
The unexpected rise in fuel inventories has raised concerns about consumption by the world’s largest oil consumer, especially as demand for travel grew over the Memorial Day weekend.
The US Energy Information Administration said on Tuesday that US crude oil production this year will rise faster and demand increases will be slower than previously expected.
The US dollar fell to a three-month low on Tuesday after US Federal Reserve Governor Christopher Waller signaled the possibility of a federal interest rate cut in the coming months if inflation falls further.
A weaker dollar usually boosts oil demand, making dollar-denominated oil less expensive for buyers using other currencies. in the Middle East.
OPEC+ predicament over production quotas for Africans
Delegates said OPEC+ was no closer to resolving the impasse over oil production quotas for some African members, which has already forced the group to postpone a crucial meeting amid troubled prices.
Delegates, speaking on condition of anonymity because the information is private, said the Saudi-led coalition was unable to reach an agreement with Angola and Nigeria, which oppose low quota limits for 2024 and reflect their dwindling production capacity. One delegate said the stalemate may not be resolved before the OPEC+ meeting scheduled for November 30, which could require further delay.
The Organization of the Petroleum Exporting Countries and its partners need to finalize production policy for 2024, as market watchers expect further cuts are needed as crude oil prices fall towards $80 a barrel on the back of a possible renewed surplus. Saudi Arabia, which has voluntarily cut its production by one million barrels per day since July, is asking other coalition members to cut their quotas to share the burden of the cuts.
Angola and Nigeria are at odds over changes to their production targets that were provisionally agreed when OPEC+ last met in June. These new quotas were reviewed by external consultants and neither country was satisfied with the revised figures.
One delegate said Lagos is now seeking a quota of 1.58 million bpd for 2024, a slight increase from the temporary level. Luanda is proposing 1.18 million bpd, lower than the figure agreed in June but higher than consultants’ estimates, the delegate said.
Failing to reach a consensus could be costly for the 23-nation coalition, which relies on oil revenues to cover government spending.
