Oil futures climbed on Thursday, with data showing high oil-producer compliance with output cuts contributing to a third straight climb in U.S. prices, even as questions were raised about the potential for an extension of the cuts beyond their expiration at the end of this month.
The Organization of the Petroleum Exporting Countries and its major allies, including Russia, a group known as OPEC+, have yet to announce a new meeting date amid reports that the group planned to bring forward a virtual gathering that had been planned for next week. That pressured prices early Thursday.
In a tweet Thursday , however, commodity data tracker Kpler said OPEC+ reduced production by around 8.6 million barrels per day in May, suggesting total compliance of 89% with the output cut deal reached in April. OPEC+ has another 1.1 million barrels per day to cut in order to reach 100% compliance with the reduction pledge of 9.7 million barrels per day from May to the end of June.
An extension of the current cut for a month is “probably a done deal and is in play, but OPEC seems to be holding out [for] an even longer extension of cuts,” Phil Flynn, senior market analyst at The Price Futures Group told MarketWatch. “Iraq’s noncompliance seems to be a sticking point.”
“The Saudis and Russians are saying no free ride for cheaters,” he said. “If Iraq gets its compliance in order, the historic cut remain until the end of the year.”
West Texas Intermediate crude for July delivery (NYM:CL.1) rose 12 cents, or 0.3%, to settle at $37.41 a barrel on the New York Mercantile Exchange, after touching an earlier low of $36.38.
Global benchmark Brent saw its August contract (IFEU:UK:BRNQ20) tacked on 20 cents, or 0.5%, to end at $39.99 a barrel on the ICE Futures Europe. The front-month contract has now climbed for six consecutive sessions.
For a third straight session, prices for WTI and Brent crude marked their highest settlements since March 6, according to Dow Jones Market Data.
Oil-producing giants Saudi Arabia and Russia have agreed to extend production cuts of 9.7 million barrels per day through July. However, the Saudis and Russian’s backing of an extension are contingent on the compliance of countries like Nigeria and Iraq with existing measures to reduce global supplies, Reuters reported .
Under the agreement reached in April, the cut expiring at the end of June is to be followed by a series of smaller reductions of 7.7 million barrels per day through Dec. 31 and 5.8 million barrels a day from Jan. 1 to April 30, 2022.
OPEC and its allies are scheduled to hold a meeting on June 9-10, but it was unclear if that video conference will take place in light of recent developments, including the apparent failure to host a planned Thursday meeting.
“Given the physical market is still in surplus and the demand data is not yet supportive, OPEC+ members still have strong incentive to play it safe and avoid the risk of derailing the rebalancing progress from the supply side until global demand can stand on its own two feet,” said Michael Ponikiewicz, vice president and portfolio manager at Acadian Asset Management.
The OPEC+ agreement that was reached in April did not begin until May 1 and, arguably, “the price action in April further incentivized three OPEC countries, led by Saudi Arabia, to ‘chip-in’ an additional 1.2 [million barrels per day], bringing the effective cut to nearly 11 [million barrels per day], showing their commitment to rebalancing the physical market,” said Ponikiewicz.
On April 20, U.S. benchmark West Texas Intermediate crude futures marked their first-ever settlement below zero, at a negative $37.63 a barrel. The Saudis then announced, in May, an extra, voluntary 1 million barrel-per-day output reduction that began in June. In solidarity with the move, Kuwait and the United Arab Emirates committed to additional cuts that totaled about 180,000 barrels per day.
“There continues to be a tenuous relationship between U.S. shale and OPEC+ in this global balancing act for oil markets in light of COVID-19 demand headwinds,” said Stacey Morris, director of research at Alerian, in emailed commentary. “With the recovery in prices, some U.S. oil producers are starting to discuss restoring volumes that had been shut in,” while “OPEC+ is debating the forward path for its cuts.”
On Wednesday, the Energy Information Administration reported that U.S. crude inventories and stocks at the Cushing, Okla, storage hub edged down last week, but gasoline inventories inched higher and distillate stockpiles sharply climbed.
On Nymex Thursday, July gasoline tacked on nearly 2.7% to $1.149 a gallon and July heating oil added 0.9% to $1.0741 a gallon.
July natural gas settled at $1.822 per million British thermal units, up 0.05%.
The EIA reported Thursday that domestic supplies of natural gas rose by 102 billion cubic feet for the week ended May 29. That was less than the average increase of 111 billion forecasted by analysts polled by S&P Global Platts.
Traders also continued to eye a storm in the Atlantic for any potential risk to energy production in the Gulf of Mexico. The storm system named Cristobal weakened into a depression Thursday from a tropical storm, according to the National Hurricane Center.