Oil slips as producers get close to agreed output cuts

Tokyo — Oil prices slipped on Tuesday, though they mostly held on to overnight gains after Opec+ said the producer grouping is almost fully complying with output cuts to support prices amid a drop in demand for fuels due to the coronavirus pandemic.

Brent crude was down 22c, or 0.5%, at $45.15 a barrel by 3.20am GMT, after gaining 1.3% on Monday.

US crude was down 23c, or 0.5%, at $42.66 a barrel, having risen 2.1% in the previous session.

Compliance with Opec+ oil output cuts was seen at about 97% in July, two Opec+ sources told Reuters. The oil producers curbed output by record levels to reduce worldwide inventories, as demand collapsed from the pandemic.

The Organisation of the Petroleum Exporting Countries (Opec) and allies known as Opec+ in August reduced their agreed cuts to 7.7-million barrels a day from 9.7-million previously as prices started picking up in recent months.

“We believe that the most significant risks to the physical (oil) market have now passed,” Australian miner and oil producer BHP said on Tuesday when it announced earnings.

“Prices may well build upon their recent recovery, if mobility continues to improve globally,” BHP said, though it warned that “the pace of gains though could be modest given potential headwinds from supply returning”.

Japan, the world’s third-biggest economy, is likely to contract more than previously expected due to the pandemic, analysts said.

The US energy information administration last week reduced its global oil demand forecast, suggesting a smaller than previously expected reduction in global inventories.

Reuters