Oil Up Slightly After Pause on Saudi Supply Move

(Bloomberg) -- Oil edged higher toward $39 a barrel as expectations U.S. crude stockpiles extended declines offset a decision by Saudi Arabia to cease extra voluntary production cuts by the end of this month.

Futures added 1% in New York after snapping a four-day rally on Monday. U.S. crude inventories probably fell for the fourth time in five weeks, according to a Bloomberg survey, while armed militants sought to derail Libya’s plan to pump more oil. Saudi Arabia said the additional supply cuts, which amounted to about 1.2 million barrels a day and included contributions from allies in the Persian Gulf, would only take effect in June as planned.

Oil has rebounded since dropping below zero in April as cuts reduced a global glut and demand recovered following the easing of lockdown restrictions in some countries. However, a return to pre-virus levels of consumption is expected to be slow and uneven, with Goldman Sachs Group Inc. turning bearish in the short term due to poor returns from refining.

The decision over the weekend by the OPEC+ coalition to extend its historic supply cuts by an extra month was already more than priced in to the market, and consumption forecasts are “running ahead of a more gradual and still highly uncertain recovery,” Goldman said in a note to clients.

“I am surprised at the strength given what I think was the weakest possible resolution of the OPEC+ talks,” said Michael McCarthy, Sydney-based chief market strategist at CMC Markets Asia Pacific. “U.S. inventory numbers could again be influential this week, particularly any evidence of shale producers springing back into action.”

Prices

West Texas Intermediate for July delivery rose 38 cents to $38.57 a barrel on the New York Mercantile Exchange as of 7:52 a.m. London time after climbing as much as 1.8% earlier Brent for August settlement gained 0.6% to $41.05 on the ICE Futures Europe exchange after falling 3.6% in the previous session

The prompt timespread for Brent widened to 23 cents a barrel in contango, a market structure that signals oversupply, after settling at 20 cents on Monday. That’s the widest so far this month.

U.S. crude inventories dropped by 2 million barrels last week, while gasoline stockpiles decreased by 750,000 barrels, according to the Bloomberg survey. If confirmed by the Energy Information Administration, that would be the second weekly draw in three weeks. Industry data is due late Tuesday.

In Libya, a group of armed militants entered the Sharara field and asked the field’s director to halt production, hours after output resumed, according to a statement from National Oil Co. It wasn’t immediately clear if production was halted. The nation is seeking to restart fields after shutdowns due to civil war.

Iraq has asked some Asia refiners to consider forgoing prompt shipments of its Basrah crude, raising speculation that OPEC’s second-biggest producer is trying to comply with pledged output cuts. The country and some others were recently pulled up by Saudi Arabia and Russia for pumping above their quotas.

To contact the reporters on this story:
Saket Sundria in Singapore at ssundria@bloomberg.net;
James Thornhill in Sydney at jthornhill3@bloomberg.net

To contact the editors responsible for this story:
Serene Cheong at scheong20@bloomberg.net
Ben Sharples, Andrew Janes