Oil Set for 3rd Monthly Gain
(Bloomberg) -- Oil is set for a third monthly advance in New York before OPEC+ starts returning supply to the market after historic cuts, with the pandemic still raging unabated across many major economies.
Deep production curbs by OPEC and its allies have helped oil rebound from its plunge below zero in April, but it’s a precarious time to be adding more supply to the market with the coronavirus spreading rapidly through some American states, while staging a comeback in Asia. Futures slid 3.3% on Thursday after data showed the U.S. economy suffered its sharpest downturn since at least the 1940s in the second quarter, highlighting the impact of the outbreak.
Oil’s rebound has stalled near $40 a barrel with rising infections raising doubts about a swift and sustained recovery in consumption. Saudi Arabia and other top producers from the Middle East are coming under heavy pressure to cut the price of their crude, while Royal Dutch Shell Plc Chief Executive Officer Ben van Beurden predicted demand may not see a full recovery until next year.
OPEC+ plans to return about 1.5 million barrels a day to the market next month after cutting global supply by roughly 10% when demand plunged. U.S. shale companies are also returning production, with ConocoPhillips the latest to announce plans to bring back oil. Continental Resources Inc., Parsley Energy Inc. and EOG Resources Inc. have said they would restore some output in July.
“The OPEC+ and U.S. shale game plan was for steadily improving crude demand to justify rising oil supplies, but the resurgence of the coronavirus pandemic put a new wrinkle to the playbook,” said Edward Moya, senior market analyst at OANDA. “If oversupply concerns return, OPEC+ could reverse the recent decision to ease oil output cuts.”
Meanwhile, the futures curve is signaling potential weakness. WTI’s three-month timespread is near the widest contango since May, indicating there are some concerns about over-supply. The market structure is where near-dated contracts are cheaper than later-dated ones.
To contact the reporters on this story:
Ann Koh in Singapore at firstname.lastname@example.org;
James Thornhill in Sydney at email@example.com
To contact the editors responsible for this story:
Serene Cheong at firstname.lastname@example.org
Ben Sharples, Rob Verdonck
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.