Oil futures retreated on Wednesday, with benchmark U.S. prices down by nearly 6%, pressured by news reports that said Russia was in favor of easing up on supply cuts as planned in July, while simmering tensions between the U.S. and China also weighed on commodities prices.
Moscow wants to begin easing production cuts in July, in keeping with the terms of the output curbs agreed to by the Organization of the Petroleum Exporting Countries and its allies earlier this year, Bloomberg reported, citing people familiar with the Russian government’s position.
“The July target is in line with the current OPEC+ deal, which has a record-breaking combined production cut of 9.7 [million barrels per day] among participants,” said Robbie Fraser, senior commodity analyst at Schneider Electric.
“However, some in the group are likely to voice support for extending cuts beyond July—particularly if the market remains clearly oversupplied amid lackluster summer driving demand,” he said in a daily note.
“Russia’s comments would suggest such an extension is unlikely for now, but ultimately even the group’s most skeptical members may change their stance depending on price evolution and market fundamentals,” said Fraser. “OPEC’s formal meeting next month will be key in determining the tentative path forward.” OPEC and its allies plan to meet on June 10 via video conference.
West Texas Intermediate crude for July delivery CL.1, -5.44% CLN20, -5.44% on the New York Mercantile Exchange fell $1.96, or 5.7%, to $32.39 a barrel. Front-month July Brent crude BRNN20, -4.75%, which expires at the end of Friday’s session, was down $1.76, or 4.9%, at $34.41 a barrel on ICE Futures Europe.
Traders also kept an eye on rising tensions in Hong Kong as China looks to impose new security laws that would crush Hong Kong’s autonomy, and worsening relations between the U.S. and China.
“Traders are concerned that expected recovery in [energy] demand may be delayed if U.S.–China– Hong Kong political tension grows, and hence is weighing in on prices,” Manish Raj, chief financial officer at Velandera Energy, told MarketWatch. “This timing impact is seen in [the] futures curve, whereby near months have declined while outer month contracts are holding steady.”
Weekly U.S. oil supply data will be released a day later than usual this week, due to Monday’s Memorial Day Holiday. The American Petroleum Institute will issue its data on U.S. supplies late Wednesday and the Energy Information Administration will release its figures Thursday morning.
On average, analysts polled by S&P Global Platts expect the EIA to report a decline of 1.2 million barrels in crude inventories for the week ended May 22. They also expect a 1 million-barrel fall in gasoline stocks and an increase of 2.5 million in distillate supplies.
“The EIA report will be particularly important in terms of what it reveals for demand, with prices likely needing a strong week-on-week increase to prevent additional selling interest from moving in,” Fraser said.
On Nymex Wednesday, June gasoline RBM20, -5.81% fell by 5.9% to 98.66 cents a gallon and June heating oil HOM20, -2.70% shed 2.6% to 96.54 cents a gallon.
June natural gas NGM20, -1.72%, which expires at the end of the day’s session, traded at $1.76 per million British thermal units, down 1.8%. The EIA will release its weekly update on supplies of the commodity on Thursday, with average analyst estimates calling for an increase of 101 billion cubic feet, according to an S&P Global Platts survey.
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