U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday, shortly before the NYMEX regular session opening at 12:00 GMT and ahead of the U.S. Energy Information Administration (EIA) weekly inventories report at 15:00 GMT.
Prices are down for a second session on Thursday as a U.S. private industry report showed a steep and surprising build-up in crude stockpiles, putting a lid on hopes of a smooth demand recovery as the global economy begins to ease its way out of coronavirus-related lockdowns.
Russia’s Commitment is Questioned
On the demand front, traders are becoming a little worried about Russia’s commitment to deeper than agreed upon oil production cuts ahead of a June 9 meeting of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+.
“As is often the case during a run-up to an OPEC+ meeting, the focus is squarely on Russia’s commitment and understandably so as historically they have been the laggard within the OPEC+, said Stephen Innes, chief global markets strategist at AxiCorp.
Two days ago Russian Energy Minister Alexander Novak met with domestic major oil companies to discuss the implementation of global oil production curbs and the possible extension of the current level of cuts beyond June, sources familiar with the plans told Reuters.
American Petroleum Institute Weekly Inventories Report
The API reported late Wednesday a large crude oil inventory build, of 8.731 million barrels for the week-ending May 22. Analysts were looking for an inventory draw of 2.50 million barrels.
The API also reported a build of 1.120 million barrels of gasoline for the week-ending May 22, compared to last week’s 651,000-barrel draw. This week’s draw compares to analyst expectations for a 33,000-barrel draw for the week.
Distillate inventories were up by 6.907 million barrels for the week, compared to last week’s 5.1 million-barrel build, while Cushing inventories saw a draw of 3.370 million barrels.
After nearly a one-month rally, crude oil traders are booking profits. Prices just got too high given the uncertain outlook for supply and demand beyond June. Although we don’t expect the markets to come anywhere close to their late April lows, we would not be surprised by a normal 50% to 61.8% correction of the rally.
Worries about whether Russia will go along with an OPEC+ extension of the output cuts is understandable since there is always apprehension ahead of and OPEC+ meeting.
The wildcard over the near-term will be U.S. inventories. Given the steep drop in the number of operating wells, traders are expecting today’s EIA report to show a 2.5 million-barrel decline. Prices could stabilize if the report hits or exceeds the mark. However, expect a steep break if the numbers are bearish.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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