WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange turned lower Thursday morning, with Saudi Arabia and Russia calling off a policy meeting scheduled for Thursday when producers were expected to agree to an extension of their accord cutting 9.7 million barrels per day (bpd) in output beyond June, giving laggard members two more weeks to deepen their cuts.
Earlier reports indicated both producers reached a tentative agreement to extend supply cuts for another month, although they seemed to have failed to agree on a date to formalize the agreement. Noncompliance issues from members including Nigeria, Iraq and Kazakhstan are seen to have caused the delay of their conference for two more weeks, with Russia insisting the laggards need to share the burden of deeper cuts with the rest of the group. Nigeria, the largest crude producer in Africa, delivered less than 20% of their pledged cut in May, raising doubts over the country's commitment to lower its production.
Against this backdrop, Saudi Arabia, Kuwait and the United Arab Emirates do not plan to extend their voluntary additional cuts of 1.18 million bpd beyond June, according to sources interviewed by Wall Street Journal.
OPEC+ members said they were confident oil demand would recover faster-than-expected this summer, citing strong mobility trends in Western Europe and the United States. The International Energy Agency revised its demand estimates up by 3.2 million bpd in the second quarter.
Russian Energy Minister Alexander Novak said on Thursday that global oil demand recovered by 5 to 7 million bpd in May from April, although is down about 21 million bpd from the February levels.
"Thanks to OPEC+ output cuts of almost 10 million bpd and "organic" declines from other producers of 3.5 million to 4 million bpd, the imbalance has declined to 7 million bpd," said Novak.
Under the current OPEC+ deal, supply cuts are set to ease to 7.7 million bpd in July, followed by additional tapering at the start of 2021.
Demand recovery may not be as smooth as some OPEC members hope for, however. U.S. inventory data showed Wednesday refined fuel stockpiles jumped a massive 12.7 million bbl during the final week of May, with 9.9 million bbl of that increase occurring in distillate stockpiles. Demand for distillates are expected to stay depressed for months now as the economy slowly reemerges from lockdown. Distillate fuels are mostly used in manufacturing, freight transportation, farming and mining, with the volume of distillates supplied to the domestic market, a proxy for demand, nearly 14% below the same point a year ago.
In this light, investors are carefully monitoring employment data in the United States to identify the shape of the economic recovery in the coming months. Data on U.S. private payrolls showed fewer job losses than expected. The U.S. private sector shed 2.76 million jobs in May, according to ADP compared with expectations of 8.66 million.
Initial jobless claims due out 8:30 a.m. ET are expected to show 1.790 million Americans filed for unemployment for the first time last week, down from 2.123 million in the prior week.
In early trading, NYMEX West Texas Intermediate July futures declined $0.52 to $36.74 per barrel (bbl) and Brent crude for August delivery traded near $39 bbl. NYMEX RBOB July futures is up, trading near a 12-week high $1.1218 gallon, while NYMEX ULSD futures traded little changed at $1.0621 gallon.
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