Oil futures finished lower Thursday for the first time in four sessions after a top Russian official played down the prospect of additional production cuts when OPEC+ meets early next month.
Crude prices were lifted earlier this week, with support tied in part to remarks by Saudi Arabia’s top energy official that were taken as a signal the Organization of the Petroleum Exporting Countries and its allies could move to further cut output at their next meeting.
Price action
- West Texas Intermediate crude for July delivery CL00, -3.30% CL.1, -3.30% CLN23, -3.30% fell $ 2.51, or 3.4%, to settle at $ 71.83 a barrel on the New York Mercantile Exchange.
- July Brent crude BRNN23, -0.08%, the global benchmark, lost $ 2.10, or 2.7%, at $ 76.26 a barrel on ICE Futures Europe. August Brent BRN00, -0.09% BRNQ23, -0.09%, the most actively traded contract, fell $ 2.05, or 2.6%, to $ 76.18 a barrel.
- Back on Nymex, June gasoline RBM23, -1.79% fell nearly 1.8% to $ 2.67 a gallon, while June heating oil HOM23, -2.92% declined by 2.8% at $ 2.35 a gallon.
- June natural gas NGM23, -4.38% dropped 3.8% to $ 2.31 per million British thermal units.
Market drivers
Russian Deputy Prime Minister Alexander Novak told the Izvestia newspaper that he didn’t expect any additional measure to be announced when OPEC+ meets on June 4, Reuters reported.
OPEC+ countries in early April announced around 1.15 million barrels a day in production cuts that took effect at the beginning of this month, while Russia pledged to continue cuts of 500,000 barrels a day through year-end.
Novak said he didn’t think there would be any “new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries due to the fact that we saw the slow pace of global economic recovery.”
Oil prices softened after the reported remarks, and were also pressured as U.S. leaders left “many unresolved issues with the debt ceiling,” StoneX’s Kansas City energy team, led by Alex Hodes, wrote in Thursday’s newsletter.
Late Wednesday, credit firm Fitch Ratings placed the top triple-A credit ratings of the U.S. on “rating watch negative,” citing due to “brinkmanship” in Washington, over raising the government’s borrowing limit and the nation’s growing debt burden.
“The debt ceiling talks debacle that have gone into overtime is raising concerns of a default,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report. “These concerns have misdirected the oil market focus from the lurking supply shortage that may end up doing more damage to the economy than a default by the United States.”
Earlier this week, Prince Abdulaziz bin Salman warned that oil short sellers should “watch out,” threatening a rerun of the price spike that occurred after output cuts were announced in early April. Analysts took the remarks as a threat that more output cuts may be in store.
See: Top Saudi official says oil speculators had better ‘watch out’
The Saudi remarks hit home because “there is a large speculative gross short in the market and [traders] will likely be hesitant to carry too much risk into the OPEC+ meeting,” wrote Warren Patterson and Ewa Manthey, commodity analysts at ING.
On Wednesday, crude futures ended at three-week highs after the U.S. Energy Information Administration reported a weekly decline crude stockpiles for the first time in three weeks, with the more than 12 million-barrel drop the largest year to date.
Natural-gas futures, meanwhile, ended sharply lower Thursday. The U.S. Energy Information Administration reported a weekly increase in domestic natural-gas supplies that was slightly below the market forecast.
Inventories of the fuel in storage rose by 96 billion cubic feet for the week ended May 19, the EIA said. Analysts called for a storage increase of 101 bcf on average, according to a survey conducted by S&P Global Commodity Insights. For the same week a year ago, the EIA reported a smaller 88 bcf supply increase, according to S&P Global Commodity Insights.