Focus on the OPEC+ Meeting
As uncertainty around OPEC+ production cut compliance and post lockdown demand recovery continue to cloud the outlook, the crude oil futures traded lower in the mid-morning trade in Asia. ICE Brent August crude futures were down 24 cents/b (0.63%) from Friday’s settle at $37.60/b, while the NYMEX July light sweet crude contract was 23 cents/b (0.65%) lower at $35.26/b.
However, the focus remained on the upcoming OPEC+ meeting after recent reports suggested that Russia may unwind its production cuts in July. “Doubts remain that Russia might not go along with an OPEC decision to extend the duration of the initial two-month period of deepest production cuts within the OPEC+ agreement,” AxiCorp Chief Global Market Strategist Stephen Innes said in a note. OPEC+ ministers are considering moving up their meeting to June 4 from the previously scheduled June9-10 so that July nominations can factor in any changes from oil production quota.
Concerns around Demand Recovery
The first month of the OPEC+ accord calls for a total of 9.7 million b/d in production cuts from May and June, easing to 7.7 million b/d over the second half of 2020 and then 5.8 million b/d for January 2021 through April 2022. Apart from supply uncertainty, the concerns also revolved around demand recovery amid the easing of restrictions and economic reopening following the lockdowns in multiple countries to contain the COVID-19 pandemic.
“The builds in distillates have been particularly quick and worrisome unless it reverses this week, it may act as a headwind to further near term improvement in crude prices,” Innes further added. Despite the easing of containment efforts, global oil demand recovery remains hampered by fears of a second wave of infections while vaccine development was still underway. Furthermore, the trade tensions between the US and China also lingered, even though President Donald Trump did not lay out any new policies during a recently concluded media conference.