By Myra P. Saefong and William Watts
Oil futures settled lower Tuesday, with global benchmark Brent crude retreating from highs above $75 a barrel, on expectations that OPEC+ may decide to further boost crude production starting in August.
Reports from both Reuters and Bloomberg said the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, had discussed a further relaxation of production curbs beginning in August.
The OPEC+ report, ahead of the group’s scheduled meeting on July 1, “indicates that the demand-supply gap is already becoming an issue, and that the alliance is working on a plan to tap that deficit,” said Louise Dickson, oil markets analyst at Rystad Energy, in a daily note.
“The OPEC+ chatter to raise supply is the most bearish risk for the recent oil price rally, which has been propelled on strong summer demand and an overall conservative supply environment,” she said.
The most-active U.S. benchmark West Texas Intermediate crude for August delivery (NYM:CL00) , which became the front-month contract at the end of the session, fell 27 cents, or 0.4%, to settle at $72.85 a barrel on the New York Mercantile Exchange. July WTI crude , which expired at the end of Tuesday’s session, lost 60 cents, or 0.8%, at $73.06 a barrel.
August Brent crude fell 9 cents, or 0.1%, at $74.81 a barrel after hitting an intraday high at $75.30. Brent last traded above $75 in April 2019 on an intraday basis, according to FactSet. It hasn’t settled at a level that high since October 2018.
“OPEC+ will likely loosen supply, either officially with a higher production target from August or unofficially with compliance slippage even earlier,” said Dickson.
The group of producers already has an agreement in place to gradually increase oil production from May through July.
Still, strong physical demand continued to underpin crude, analysts said. The backwardation of the Brent futures curve — with nearby futures prices trading at a premium to later dated contracts — underscores the near-term demand for barrels and is also generating additional speculative interest, said Eugen Weinberg, commodity analyst at Commerzbank, in a note.
Among the petroleum products traded on Nymex Tuesday, July gasoline added nearly 1.3% to $2.22 a gallon, with prices based on the most-active contract marking their highest finish since May 24, 2018, according to Dow Jones Market Data. July heating oil rose 1.1% to $2.15 a gallon — the highest settlement since Nov. 12, 2018.
On average, analysts polled by S&P Global Platts expects the Energy Information Administration on Wednesday to report a drop of 6.3 million barrels in U.S. crude inventories for the week ended June 18. They also forecast weekly supply increases of 1.3 million barrels for gasoline and 1 million barrels for distillates.
Also on Nymex, July natural gas tacked on 2.1% to $3.26 per million British thermal units.