Oil prices succumbed to pressure on Tuesday by an economic slowdown that has started to impact fuel consumption, although some support came from a Saudi Arabian statement that consensus was emerging with other producers over extending supply cuts.
Front-month Brent crude futures were at $61.06, and was 22 cents, or 0.4 per cent below last session’s close.
The U.S. West Texas Intermediate (WTI) crude futures were at $53.08 per barrel, down 17 cents, or 0.3 per cent from their last settlement.
Saudi Arabia also pumped 9.65 million barrels of oil per day (bpd), cutting deeper than its production target under a global pact to reduce oil supply, a Saudi oil industry source said on Monday.
Saudi Arabia’s output target under an OPEC-led supply cut agreement is 10.3 million bpd.
Oil futures are around 20 per cent below 2019 peaks reached in late April, with falls in May the sharpest monthly declines since November.
That has come as financial traders sell out of oil futures amid growing concerns about the outlook for the world economy and oil consumption.
Saudi Energy Minister Khalid al-Falih said on Monday that a consensus was emerging among producers to continue working “to sustain market stability” in the second-half of the year.
The Middle East dominated producer club of the Organization of the Petroleum Exporting Countries (OPEC), together with some allies including Russia, has been withholding supply since the start of the year to prop up the market.
The group plans to decide later this month or in early July whether to continue withholding supply.
Meanwhile, U.S. oil output has been soaring, making the country the world’s biggest crude producer, at 12.3 million barrels per day (bpd) at the end of May, versus 11.11 million bpd produced in Russia and 9.65 million bpd pumped out of the ground in Saudi Arabia.
With U.S. production surging, more of its oil is being exported, with a record of six super-tankers scheduled for loading at the Louisiana Offshore Oil Port (LOOP) between late May and early June.
Ole Hansen, head of commodity strategy at Saxo Bank, said “the tight supply focus (is) switching to increased risk of lower growth and demand”, and that “an escalation of the U.S.-China trade war has added further downside risks to already slowing economies”.
South Korea’s economy shrank by 0.4 per cent in the first quarter while core inflation slowed to a near 20-year low in May, data showed on Tuesday, pointing to a further economic slowdown in Asia.
“Slowing economic activity now threatens to derail our base case of robust cyclical (oil) demand growth,” Bank of America Merrill Lynch said in a note.
Meanwhile, Saudi Energy Minister Khalid al-Falih said consensus was emerging among the OPEC+ group of oil producers to continue working towards oil market stability in the second half of the year, the Saudi-owned Arab News newspaper reported on Monday.
Oil prices in May sustained their worst monthly fall in six months on worries that trade disputes would hit demand for crude.
Saudi Arabia, produced 9.65 million barrels per day (bpd) of oil in May, a Saudi industry source said, a deeper cut than its target set by the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+.
The output target of top oil exporter Saudi Arabia under the OPEC+ supply agreement is 10.3 million bpd. In April, the country produced 9.742 million bpd, OPEC data shows. The output cut deal runs until the end of June.
“We will do what is needed to sustain market stability beyond June. To me, that means drawing down inventories from their currently elevated levels,” Arab News quoted Falih as saying.
U.S. crude stockpiles fell less than expected last week, data from the Energy Information Administration showed on Thursday. Stocks are near their highest since July 2017 and about 5 per cent above the five-year average.
Feeding bearish market sentiment, the United States and China, the world’s two biggest economies, are embroiled in a trade war that has stoked fears of a global economic slowdown which in turn would weigh on oil demand.
But at the same time, U.S. sanctions on OPEC members Venezuela and Iran have slashed their oil exports.
“Increasing trade friction and potential barriers would certainly have a negative impact on the global economy and oil demand growth. But the direction of the negotiations (between the United States and China) is hard to predict,” Falih said.
“You can be sure that we will be responsive . These levels (of volatility) are totally unwarranted in light of both the current market fundamentals, which remain healthy, and the high levels of discipline by OPEC+ producers.”