Oil prices dips over output cuts, surging U.S. diesel inventories

Oil prices dips over output cuts, surging U.S. diesel inventories
Crude oil prices decline on Thursday, reversing gains in the previous session, on concerns if major crude producers will be able to agree to extend record output cuts.

This development is heightened by worries over a huge build in the United States distillate inventories.

According to Reuters, Brent crude futures fell 1.46 per cent, or 58 cents, to $39.21 a barrel as of 0459 GMT, while U.S. West Texas Intermediate (WTI) crude futures slid 1.98 per cent, or 74 cents, to $36.55 a barrel.

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.

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.

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According to the head of commodity research at National Australia Bank, Lachlan Shaw, “The market has taken a look at that and said it’s getting more complicated to get that deal over the line.

“That would imply OPEC+ would go back to what they agreed in April, which was to ease their supply cuts to 7.7 million bpd from July.”

Further, 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.

The huge build in distillate inventory in the United States, the world’s biggest oil user, also weighed on prices, said CMC Markets’ chief market strategist Michael McCarthy.

U.S. Energy Information Administration data on Wednesday 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-ago 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-ago period.

“It shows the recovery in gasoline and distillate demand is not V-shaped. It just reinforces that we’ve had this initial (price) recovery driven by supply side discipline,” Shaw said.

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