Oil Price Fundamental Daily Forecast – Doubts Over Output Cuts, Surging Fuel Inventories Weighing on Prices

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.

At 09:22 GMT, July WTI crude oil is trading $36.51, down $0.78 or -2.09% and August Brent crude oil is at $39.19, down $0.60 or -1.51%.

Confusion Over Production Cut Extension

Saudi Arabia and Russia, 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.

But they failed to agree on holding an OPEC+ meeting on Thursday to discuss the cuts, with OPEC sources saying it would be conditional on countries that have not complied with their targets so far deepening their cuts.

Additionally, Saudi Arabia and other Gulf producers Kuwait and the United Arab Emirates are not planning to extend voluntary additional output cuts of 1.18 million bpd after June, indicating crude supply could rise next month no matter what OPEC+ decides.

U.S. Energy Information Administration Weekly Inventories Report

The EIA said on Wednesday that crude oil inventory fell 2.10 million barrels during the week-ending May 29. This was lower than the 3.00 million barrel forecast. Prices bounced higher on the news.

Gains were limited, however, because the report also showed gasoline stocks rose by 2.8 million barrels, nearly triple what analysts had expected, while distillate stocks rose by 9.9 million barrels, or nearly four times more than expected.

Overall demand for diesel and similar fuels is down 13% from the year-earlier period over the last four weeks. Gasoline product supplied, a proxy for demand, picked up last week, but the four-week average still shows a 23% drop from the year-earlier period.

Daily Outlook

OPEC’s failure to hold the meeting on Thursday could’ve sent shock waves through the market but so far the reaction has been relatively calm. This is probably because OPEC didn’t say there would be no extension, it only said there would be no meeting. This suggests getting a new deal may be a little more complicated than previously thought.

Furthermore, we could see additional downside pressure if traders decide to focus on the length of the deal. Early Wednesday, the market was beginning to price in an extension into August or September. Now the Saudis and Russians are saying the deal only extends into July.

The rise in gasoline and distillates inventories is also a concern because it indicates low demand, which can only mean we’re not likely to see a V-shaped recovery in the economy.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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