Oil prices dipped by almost 1% on Monday as traders played safe with the Organisation of the Petroleum Exporting Countries contemplating a meeting this week to deliberate on whether to extend output cuts beyond June.
Brent crude edged down by 34 cents to $37.50 per barrel in the first day of trading in the contract with August as the front month.
West Texas Intermediate (WTI) crude futures for July delivery fell by 32 cents to $35.17 a barrel at 02.23 West African Time.
Nigeria’s top crude grade, Bonny Light, had closed the last session on a positive note, up by 74 cents or 2.18% at $34.61 per barrel.
The price slump is coming after front-month Brent and WTI recorded their biggest monthly gains in several years in May. Gains had been stimulated by OPEC oil production falling to its lowest point in twenty years with a rebound in demand anticipated as more countries relax coronavirus lockdowns.
“The focus is very much on OPEC+,” said Howie Lee, economist at Singapore’s OCBC Bank in reference to OPEC and its Russia-led allies.
OPEC+ agreed in April to slash crude production by a historic 9.7 million barrels per day after the coronavirus pandemic depressed 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,” Mr Lee further said.
Meanwhile, escalating tensions between U.S. and China have impacted global financial markets adversely just as traders are keeping an eye on the outrage over the weekend that have spilled across major cities of the U.S.
Saudi Arabia plans to extend unprecedented cuts from May and June through the rest of the year but has yet get Russia’s support, sources told Reuters.
Algeria, which currently holds OPEC presidency, has suggested that an OPEC+ meeting scheduled for 9th-10th June be brought forward to boost oil sales for nations including Iraq, Saudi Arabia and Kuwait. Russia has shown no objection to this.
“It’s been widely interpreted as likely to lead to an extension of the current production cuts.
“Oil prices have come down slightly in our session but they’re still at elevated levels. I suspect that’s the key driver of prices on Friday night and should keep prices reasonably well supported today,” Michael McCarthy, CMC Markets’ Chief Market Strategist said.
Supply in North America is similarly dropping as Baker Hughes Co data demonstrated that the U.S. and Canada oil and gas rigs count fell to a historic low in the week to 29th May.