Oil prices seesawed Thursday, after the Organization of the Petroleum Exporting Countries and its allies agreed to boost output by a larger-than-usual amount in July and August but failed to dispel worries over the supply gap expected to be left by Russian crude.
- West Texas Intermediate crude for July delivery CL.1, -0.45% CLN22, -0.45% was down 66 cents, or 0.6%, at $114.60 a barrel on the New York Mercantile Exchange.
- July Brent crude BRNQ22, -0.42% dropped 50 cents, or 0.4%, to $115.79 a barrel on ICE Futures Europe.
- July gasoline RB00, -1.21% fell 1.1% to $4.027 a gallon, while July heating oil HO00, -1.08% was down 1% at $4.10 a gallon.
- July natural gas rose NGN22, -2.59% dropped 3.4% to $8.397 per million British thermal units.
OPEC+ agreed to raise its production target by 648,000 barrels a day in July and August, compared with the 432,000 barrel-a-day monthly rises that it has implemented since last year.
Concerns over supply remain, however, given OPEC+’s difficulties in meeting earlier production increases, analysts noted.
“Fortunately for the bull camp, OPEC+ has consistently underproduced relative to the OPEC+ production agreement,” while Indian oil output hit a 28-year low in its just completed fiscal year, noted analysts at Zaner. “With the net supply-side takeaway still bullish, demand views improved by the opening of Shanghai, less equity market anxiety, and a record Asian crude oil import tally last month, the markets should be able to find support relatively soon.”
Earlier Thursday, oil prices had dropped sharply after Financial Times reported that Saudi Arabia had told Western allies that it would raise production if it becomes apparent that global supply is facing a big drop in Russian output due to sanctions over its invasion of Ukraine. Citing five persons with knowledge of the matter, the report said those concerns have increased since the EU recently imposing a ban on Russian oil by sea. The sources said that Saudi Arabia sees a tight market, but no major shortages for now, though a ramping up of China’s economy as it recovers from the latest COVID outbreak could pressure supplies further. Easing lockdowns in China’s biggest cities have provided support for oil prices recently.
Hitting oil prices earlier this week was a report in The Wall Street Journal that some members of the group exempting Russia from its production targets. Russia remained part of the production agreement after Thursday’s meeting.
The White House welcomed the OPEC+ decision.
“We recognize the role of Saudi Arabia as the chair of OPEC+ and its largest producer in achieving this consensus amongst the group members,” said White House Press Secretary Karine Jean-Pierre, in a statement. “We also recognize efforts and positive contributions of U.A.E. (United Arab Emirates), Kuwait, and Iraq. The United States will continue to use all tools at our disposal to address energy prices pressures.”
Separately, the Associated Press reported that President Joe Biden was considering a face-to-face meeting with de facto Saudi ruler Prince Mohammed bin Salman. Biden denounced the Saudi royal family in 2019 after the 2018 killing and dismemberment of U.S.-based journalist Jamal Khashoggi,
Investors will also be keeping an eye on U.S. supply data from the Energy Information Administration, scheduled for release at 11 a.m. Eastern Time. The report was delayed by a day due to Monday’s Memorial Day holiday.
Analysts and traders surveyed by The Wall Street Journal estimate U.S. oil inventories declined by 500,000 barrels for the week ended May 27. Gasoline stockpiles are expected to decrease by 100,000 barrels from the previous week, while distillate inventories are expected to rise by 800,000 barrels.
The American Petroleum Institute, an industry group, said late Wednesday that its weekly data showed a 1.2-million-barrel drop in crude supplies, a 256,000-barrel fall in gasoline stocks and an 858,000-barrel increase in distillate inventories, according to a source.