Oil sank despite US data showing the biggest drop in the nation’s stockpiles in five weeks
- West Texas Intermediate crude for July delivery slumped $1.32, or 1.7%, to close at $77.91 a barrel on the New York Mercantile Exchange.
- July Brent crude settled at $81.86 a barrel on ICE Futures Europe, down $1.74, or 2.1%.
- Back on Nymex, June gasoline dropped 2.4% to end at $2.404 a gallon, its lowest close since Feb. 29. June heating oil fell 2.8% to $2.369, its lowest finish since June 12.
- July natural gas shed 3.5% to close at $2.572 per million British thermal units.
- Brent crude has weakened into a contango structure for the first time since January,
- Spooked traders fear the market is oversupplied.
Oil futures ended lower Thursday, feeling pressure as equities and other assets perceived as risky extended a selloff, and government data showed an unexpected rise in fuel inventories. Investors are also preparing for a Sunday meeting of the Organization of the Petroleum Exporting Countries and its Russia-led allies, which is expected to lead to a rollover of voluntary production cuts otherwise due to expire at the end of June.
Oil has risen this year due to geopolitical conflicts and production curbs by the Organization of the Petroleum Exporting Countries and its allies. The group will likely consider factors including a drop in prices over the past month, a weaker Chinese demand outlook and healthy supplies from the Americas when ministers convene on Sunday.
The OPEC+ alliance is widely expected to prolong output cuts into the second half of 2024, which Brian Kessens, a managing director at Tortoise Capital Advisors LLC said “will add some certainty to the market.”
Through the end of this year, OPEC+ members have agreed to 3.66 million bpd in cuts, plus the 2.2 million bpd in voluntary cuts that are separate and set to end at the close of June. In total, the cuts equal just under 6% of global oil demand, with Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia and the UAE ARE participating in the voluntary cuts. The oil market is likely to remain in a deficit this year if OPEC+ rolls over its voluntary output cuts, prolonging the constructive backdrop for prices. Demand growth has been modest amid soft industrial activity and mild weather (especially in Europe), though a surge in consumption points to undersupply in 2H.