Oil Falls 2% After Russia Dismissed More Cuts by OPEC+
WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange accelerated losses during afternoon trading Thursday amid a one-two punch of a stronger U.S. dollar and growing skepticism over potential production cuts by OPEC+ after a top Russian official dismissed the possibility of another reduction in the group's output.
Russia expects oil prices to rise above $80 barrel (bbl) later this year although does not see a need for any further output adjustments from OPEC+ members, according to comments from Deputy Prime Minister Alexander Novak.
"I think that the price will be slightly higher than $80 per barrel, and I hope that the demand will still rise in the summer. A reduction of output by many countries is also going to influence. There is no need for further production cuts at this point," said Novak, referencing previously announced production cuts.
Russia announced a reduction of 500,000 barrels per day (bpd) earlier this year, followed by a package of OPEC+ cuts of more than 1 million bpd, including 500,000 bpd from Saudi Arabia, announced in April. Russian crude exports so far are showing few signs that the announced cuts have been fully implemented however, a potential issue at OPEC+'s next meeting in early June in Vienna when compliance levels will be reviewed.
Earlier this week, Saudi Oil Minister Prince Abdulaziz bin Salman suggested OPEC+ could consider cutting oil production further at their early June meeting to squeeze out short sellers.
"I keep advising them that they will be ouching -- they did ouch in April," said bin Salman at the Qatar Economic Forum in Doha on Tuesday, according to Reuters. "I don't have to show my cards, I am not a poker player...but I would just tell them: Watch out!"
On April 2, OPEC announced a surprise production cut of 1.157 million bpd effective May 1 until the end of the year, with Saudi Arabia and other Gulf producers shouldering the lion's share of that output curb. The reduction comes on top of 2 million bpd cut announced in October 2022 that has so far been the largest cut to OPEC+ output since the start of the pandemic. Arguably, Saudi oil strategy is to defend prices by any means necessary as the kingdom seeks to transition from oil in coming decades and needs higher prices now to finance this project.
Limiting losses for the oil complex, inventory report released Wednesday from the U.S. Energy Information Administration revealed domestic oil stockpiles plunged 12.5 million bbl last week, missing expectations for a modest build. The outsized drawdown occurred as domestic refiners scaled back run rates and upstream producers lifted output during the reviewed week.
The bullish weekly report showed gasoline demand jumped 529,000 bpd from the previous week to 9.437 million bpd -- the second highest weekly rate so far this year. Gains for gasoline demand come ahead of the Memorial Day weekend that typically marks the beginning of the busy summer travel season. The American Automobile Association projects 42.3 million Americans will take to the road this Memorial Day weekend, a 2.7 million or 7% increase from a year earlier. If realized, it would be the third busiest travel for the holiday, with AAA beginning its holiday travel outlook in 2000.
Commercial gasoline inventories declined 2.1 million bbl in the reviewed week and are about 8% below the five-year average. For diesel, stockpiles fell 561,000 bbl to 105.7 million bbl, and are now about 18% below the five-year average, EIA said.
At settlement, West Texas Intermediate futures for July delivery declined $2.51 to 71.83 bbl, and ICE July Brent, the international crude benchmark, fell to $76.07 bbl, down $2.10 bbl. NYMEX June RBOB futures were $0.0477 lower at $2.6735 gallon, while June ULSD futures declined $0.0675 to $2.3462 gallon.
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