Oil prices fell nearly 1 per cent on Monday as traders hedged bets with the Organization of the Petroleum Exporting Countries, OPEC, considering meeting as soon as this week to discuss whether to extend record production cuts beyond end-June.
Brent crude fell 34 cents to $37.50 a barrel, in the first day of trading in the contract with August as the front month, while the West Texas Intermediate, WTI, crude futures for July delivery were at $35.17 a barrel, down 32 cents.
The price falls come after front-month Brent and WTI prices posted their strongest monthly gains in years in May.
Gains were boosted by OPEC crude production dropping to its lowest in two decades with demand is expected to recover as more nations emerge from coronavirus lockdowns.
“The focus is very much on OPEC+,” OCBC economist Howie Lee said, referring to the grouping of OPEC and its allies including Russia. OPEC+ agreed in April to reduce output by an unprecedented 9.7 million barrels per day (bpd) in May and June after the coronavirus pandemic ravaged demand.
“We might see a cautious pullback in (crude) prices given that downstream prices haven’t caught up but if OPEC+ does come up with a three-month extension, there’s a possibility that prices may hit the $40 level,” Lee said.
Still, tensions between the United States and China weighed on global financial markets while traders are also keeping an eye on riots over the weekend that have engulfed major U.S. cities.
Saudi Arabia is proposing to extend record cuts from May and June until the end of the year, but has yet to win support from Russia, sources have told Reuters.
Algeria, which currently holds the OPEC presidency, has proposed an OPEC+ meeting planned for June 9-10 be brought forward to facilitate oil sales for countries such as Saudi Arabia, Iraq and Kuwait and Russia has no objection to the meeting being brought forward to June 4.
Meanwhile supply in North America is also falling as data from Baker Hughes Co showed that the U.S. and Canada oil and gas rigs count dropped to a record low in the week to May 29.
Meanwhile, OPEC+ members are close to a decision to bring forward their next meeting by a few days, according to people familiar with the situation.
If confirmed, the move would give the cartel and its allies more room for maneuver to change the current production limits. The existing deal struck in April as demand collapsed amid the pandemic calls for curbs to ease from July. But that’s up for discussion at the next meeting.
OPEC members usually decide their plans for shipping oil to customers for July in the first week of June, so meeting earlier gives them time to change tack.
Algerian Energy Minister Mohamed Arkab, who holds the rotating presidency, proposed moving the meeting to June 4, instead of June 9-10. A final decision is expected on Sunday, according to two delegates.
The 23-nation OPEC+ coalition led by Saudi Arabia and Russia is undertaking record oil-production cuts to offset the loss in demand from the coronavirus crisis. At the next meeting they will decide whether to maintain the current cutback or ease it slightly as originally planned.
Moving the gathering which is set to happen by videoconference would also mean shifting committee meetings that normally take place before a ministerial conference to later in the month.
OPEC currently has an Economic Commission Board meeting scheduled for June 2-3, and a Joint Technical Committee to assess implementation of the current supply cuts on June 5.
The OPEC and its partners have committed to curb output by 9.7 million barrels a day, or about 10% of global supply. Group leader Saudi Arabia and its fellow exporters in the Persian Gulf are adding extra voluntary cutbacks of just over 1 million barrels a day in June.
The current agreement allows the coalition to relax the reductions to about 8 million barrels a day.
Yet with oil prices still near $35 a barrel far below the levels most OPEC+ nations need to cover government spending the group could decide to keep going with the full cutback, to try to prop up the market.