WASHINGTON (DTN) -- Nearest delivery oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange shifted higher in afternoon trade Wednesday after news broke that Saudi Arabia and Russia reached a tentative agreement to extend the 9.7 million barrels per day (bpd) supply deal through July, while raising pressure on producers with laggard compliance to deepen their cuts.
Iraq and Nigeria both under-delivered on their pledged reductions last month, failing to meet the 50% compliance threshold. Russia, having a long history with poor compliance itself, reached its agreed 2.5 million bpd quota and reportedly had an issue with participation in a new agreement unless laggard members reached acceptable compliance levels.
Under the current OPEC+ deal, supply cuts are meant to be eased to about 7.7 million bpd in July, followed by an additional tapering at the start of 2021.
The Wall Street Journal reported Wednesday that Saudi Arabia managed to convince its Russian partners to extend the agreement for one more month, with smaller producers pledging to work on their quotas. According to sources interviewed by WSJ, producers remain confident global oil demand would recover at faster pace this summer than previously forecasted. The International Energy Agency revised its demand estimates by 3.2 million bpd in the second quarter, based on signs of stronger-than-expected mobility in the United States and Europe.
Underlining this sentiment, government data revealed Wednesday that gasoline demand in the U.S. jumped nearly 300,000 bpd or just over 4% to a fresh 10-week high at 7.549 million bpd in the week ended May 29. For the four weeks ended May 29, implied gasoline demand is 22.5% below last year's levels. Traffic activity still remains at somewhat depressed levels for the summer driving season, with demand seen gaining further in the coming weeks as the economy reopens and protests in the metropolitan cities subside. National Guard troops have now been deployed across 29 states with curfews announced in nearly all major cities to quell the protests that at times disintegrate into riots and looting.
On the session, NYMEX West Texas Intermediate July futures clawed back to settle $0.48 higher at $37.29 barrel (bbl) and Brent crude for August delivery finished modestly higher at $39.79 bbl. NYMEX RBOB July futures ended slightly higher at a better than 12-week high $1.1193 gallon, while NYMEX ULSD futures dropped back 2.75 cents to $1.0646 gallon.
ULSD futures came under selling pressure after EIA data showed a massive 12.7 million bbl increase in refined fuels supplies during the final week of May, with 9.9 million bbl of that build reported in distillate inventories. At 174.3 million bbl, distillate supplies are now about 28% above the five-year average.
Implied demand for distillates continued lower, tumbling 16.8% in the week profiled to 2.718 million bpd, down nearly 20% from the same week in 2019.
Liubov Georges can be reached at firstname.lastname@example.org
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