Oil Falls on Signs OPEC+ Will Taper Cuts Even With Virus Surging
The Well-Safe Guardian plug and abandonment rig, operated by Well-Safe Solutions Ltd, stands in the Port of Cromarty Firth during sunrise in this aerial view in Cromarty, U.K. (Photographer: Jason Alden/Bloomberg)

Oil Falls on Signs OPEC+ Will Taper Cuts Even With Virus Surging

Oil retreated before an OPEC+ committee meeting this week that may confirm the group’s intention to taper production cuts even as the coronavirus surges in many countries including the U.S.

Expectations are that the cartel will begin unwinding historic supply curbs as planned in August, and Russia’s top producers are also preparing to increase output next month. The additional supply will hit the market while the U.S. continues to struggle to control fresh outbreaks of the virus. An increase in tensions with China also hit market sentiment and prices dipped going into the close.

“Our view is the committee will focus on compliance first, and not formally opine on the need to extend the producer group’s deepest cut to August,” said Harry Tchilinguirian, head of commodities strategy at BNP Paribas.

Oil Falls on Signs OPEC+ Will Taper Cuts Even With Virus Surging
  • West Texas Intermediate for August delivery fell 1.1% to close at $40.10 a barrel in New York
  • Brent for September settlement dropped 52 cents to $42.72

Oil’s rally over the last few months has stalled as traders weigh a resurgence of the virus in sunbelt states and elsewhere in the U.S. that’s casting a cloud over a recovery in gasoline demand. At the same time, U.S. stockpiles remain stubbornly high.

The tone for the market may be dictated by the reaction to key earnings from banks including JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. on Tuesday, as well as those from Delta Air Lines Inc.

“It is possible crude oil may not have anything positive to correlate to if banks and airlines set the tone on Tuesday,” Robert Yawger, director of the futures division at Mizuho Securities USA, said in a note to clients.

Meanwhile, the panel that reviews the OPEC+ deal will consider whether the alliance should keep 9.6 million barrels of daily output off the market for another month, or taper the cutback to 7.7 million barrels as originally planned. Members are leaning toward tapering, according to several national delegates who asked not to be identified.

Other oil-market news
  • Saudi Arabia gave at least five Asian customers less August-loading crude than they had sought.
  • U.S. oil output will bottom in the first quarter of next year and won’t return to pre-Covid-19 levels until 2023, paving the way for a tighter market, HSBC analysts said in a report.
  • Shuttered output is edging back in some parts of America, with the Bakken region in North Dakota adding 45,000 barrels a day in a two week period.

©2020 Bloomberg L.P.

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