Oil declined from the highest settlement in 11 weeks on signs Russia is supporting plans to start easing supply cuts from July, while tensions between the US and China escalated amid the specter of sanctions.
Futures fell 1% in New York. Moscow wants to scale back curbs in line with the Opec+ deal, according to people familiar with the matter. A Kremlin spokesman had earlier said Russia would analyse the market before making any decision at a June 9-10 Opec+ meeting. Meanwhile, the US is considering a range of sanctions to punish China for its crackdown on Hong Kong, further deteriorating their relationship.
Crude in New York has surged about 80% in May, clawing back the declines of the previous two months. The physical market has also recovered in recent days. Indian, Chinese and South Korean refineries are buying distressed cargoes in a sign of returning demand. The price differences between immediate contracts and those for later delivery are also narrowing, in a further indication of supply tightness.
Opec and its allies agreed to reduce output by almost 10 million barrels a day from this month in an effort to drain a worldwide glut brought on by demand collapse amid the coronavirus outbreak.
As part of that deal, cuts would slowly taper from July. Russia plans to stick with those terms, people familiar with the matter said.
Opec+ is scheduled to meet in two weeks to discuss whether to extend the curbs or ease them.
“At this stage there are two only variables that are able to significantly move prices,” said Rystad Energy’s head of oil market analysis, Bjornar Tonhaugen. “Hints on the direction at the coming Opec+ meeting and the consensus that will be reached, and the rate of the shut production’s reactivation.”
Despite the boost in demand and optimism over economies recovering, there are some warning signals. Demand for gasoline fell 25% to 35% from a year earlier over the U.S. Memorial Day weekend, which heralds the start of the summer driving season and the peak of fuel consumption. Profits for making the fuel dropped below $10 a barrel for the first time in about two weeks on Wednesday.