Oil was anchored near $38 a barrel as expectations U.S. crude stockpiles extended declines offset a decision by Saudi Arabia to cease extra voluntary production cuts by the end of this month.
Futures added 0.5% in New York after snapping a four-day rally on Monday. U.S. crude inventories probably fell for the fourth time in five weeks, according to a Bloomberg survey before government data Wednesday. Saudi Arabia said the additional supply cuts, which amounted to about 1.2 million barrels a day and included contributions from allies in the Persian Gulf, would only take effect in June as planned.
Oil has rebounded since dropping below zero in April as cuts reduced a global glut and demand recovered following the easing of lockdown restrictions in some countries. However, a return to pre-virus levels of consumption is expected to be slow and uneven, with Goldman Sachs Group Inc. turning bearish in the short term due to poor returns from refining.
The decision over the weekend by the OPEC+ coalition to extend its historic supply cuts by an extra month was already more than priced in to the market, and consumption forecasts are “running ahead of a more gradual and still highly uncertain recovery,” Goldman said in a note to clients.
“I am surprised at the strength given what I think was the weakest possible resolution of the OPEC+ talks,” said Michael McCarthy, Sydney-based chief market strategist at CMC Markets Asia Pacific. “U.S. inventory numbers could again be influential this week, particularly any evidence of shale producers springing back into action.”
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The prompt timespread for Brent widened to 23 cents a barrel in contango, a market structure that signals oversupply, after settling at 20 cents on Monday. That’s the widest so far this month.
U.S. crude inventories dropped by 2 million barrels last week, while gasoline stockpiles decreased by 750,000 barrels, according to the Bloomberg survey. If confirmed by the Energy Information Administration, that would be the second weekly draw in three weeks. Industry data is due late Tuesday.
Iraq, OPEC’s second biggest producer, said it would fully commit to the output cut deal, but called on the cartel to take its economic plight into consideration when deciding on production quotas. The country and some others were pulled up by Saudi Arabia and Russia for pumping above their quotas.
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