Oil dips after Opec and allies agree to ease supply curbs

Tokyo — Oil prices eased on Thursday after Opec and allies such as Russia agreed to taper record supply curbs from August, though the drop was cushioned by hopes for a swift US demand pickup after a big drawdown from the country’s crude stocks.

Brent crude fell 27 US cents, or 0.6%, to $43.52 a barrel by 4.39am GMT, and US West Texas Intermediate (WTI) crude dropped 32c, or 0.8%, to $40.88 a barrel. They rose 2% the previous day, helped by the US crude inventories drop.

Opec and its allies, known as Opec+, agreed on Wednesday to scale back oil production cuts from August as the global economy slowly recovers from the coronavirus pandemic.

Opec+ has been cutting output since May by 9.7-million barrels per day (bpd), or 10% of global supply, but from August, cuts will officially taper to 7.7-million bpd until December.

“Some investors took profits after the Opec+ decision, but a big draw in US crude provided some support,” said Fujitomi chief analyst Kazuhiko Saito.

Data from the Energy Information Administration showed US crude inventories fell 7.5-million barrels last week, shrinking much more than the 2.1-million-barrel drop expected by analysts in a Reuters poll.

Despite the official Opec+ accord, Saudi Arabian energy minister Abdulaziz bin Salman said production cuts in August and September would end up amounting to about 8.1-million-8.3-million bpd, more than the headline number. That’s because countries in the grouping that over-produced earlier in 2020 would compensate by making extra August-September cuts, the minister said.

Oil prices are expected to remain boxed in as more supply from Opec+ countries will likely be absorbed by recovering demand, said Tsutomu Kosuge, president of commodity research firm Marketedge.

“I expect Brent will stick to the tight range between $40.50-46.50 for the next month or so,” he said, adding that rising tensions between China and the US may weigh on market sentiment.

US secretary of state Mike Pompeo took fresh aim at China on Wednesday, saying the US would impose visa restrictions on Chinese firms such as Huawei Technologies that he accused of facilitating human-rights violations.

Rystad Energy also predicted that oil prices will stay where they are for the rest of 2020 as any uptick will hurt already struggling refining margins and negatively affect the most-needed recovery in refinery runs, it said in a note.

Elsewhere, International Energy Agency executive director Fatih Birol said on Wednesday global oil markets were slowly rebalancing after the shocks seen during the coronavirus lockdown, with prices expected at about $40/barrel in the coming months.

Reuters