Oil Dips With Doubts Surfacing Over Saudi Output Cuts

(Bloomberg) -- Oil declined as doubts circulated over Saudi Arabia’s ability to implement additional pledged production cuts.

Futures in New York dropped 2.4% Monday following a morning rally. Saudi Arabia said it will pump 7.492 million barrels a day next month, about a million barrels below its official OPEC+ output target. That would be the lowest level since mid-2002, according to data compiled by Bloomberg.

“While Saudi is undoubtedly the market’s swing supplier, delivering such a volume turnaround in the space of only a couple of months is a tall order,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.

Oil Dips With Doubts Surfacing Over Saudi Output Cuts

The UAE also announced an additional 100,000 barrels per day of cuts for June. The curtailments have added to the unprecedented output cuts the Organization of Petroleum Exporting Countries and its allies embarked on May 1 in response to the coronavirus pandemic, which has crushed consumption.

Prices:
  • West Texas Intermediate for June delivery fell 60 cents to settle at $24.14 a barrel in New York.
  • Brent for July settlement dropped $1.34 to end the session at $29.63 a barrel.

Questions remain over the timing of a strong pick-up in demand. China has seen a steady recovery in air travel and traffic in its capital city, but in Europe various degrees of lock-down continue to hobble fuel demand. In the U.S., an OPIS report showed that the volume of fuel sold by retailers across the nation rose just over 7% during the week ended May 2. However, the rebound is still far below 2019 levels.

“If somebody wanted Saudi’s oil, they would produce it,” said Michael Hiley, head of over-the-counter energy trading at LPS Futures. “The reverse logic is because they are willing to cut another million, it means they don’t have buyers for that million, so what appears to bullish is actually bearish.”

Other oil market news:
  • More than a million barrels of crude is floating in two tankers off Hawaii as the island state’s sole oil refiner idles its crude unit.
  • Kuwait will cut oil production by an additional 80,000 barrels per day for June, Kuwait News Agency reports, citing the nation’s oil minister.
  • Saudi Arabia announced a slew of austerity measures to cope with the impact of the coronavirus pandemic and an oil-price rout, tripling its value-added tax and cutting a cost-of-living allowance for government workers.

©2020 Bloomberg L.P.

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