Crude futures lower ahead of OPEC+ production cut talks

Singapore
0304 GMT: Crude oil futures were lower in mid-morning trade in Asia July 13 ahead of mid-week deliberations by OPEC+ over whether to maintain its current supply cut for another month, and as several countries reported a sharp rise in coronavirus infections.

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At 11:04 am Singapore time (0304 GMT), ICE Brent September crude futures were down 44 cents/b (1.02%) from the July 10 settle at $42.80/b, while the NYMEX August light sweet crude contract was 43 cents/b (1.06%) lower at $40.12/b.

The record high inventories in the US and a second wave contagion around the globe have added speculation that OPEC+ might yet throw a surprise decision this week by extending the 9.6 million b/d output cuts by a further month, but we think that is unlikely given how prices have almost doubled from lows in April,” OCBC analysts said in a note July 13. “In the short term, we expect oil prices to remain within its consolidation phase,” they added.

The OPEC+ Joint Ministerial Monitoring Committee will decide July 15 whether to extend 9.7 million b/d production cuts that expire end July by another month.

With major economies showing signs of recovery, sources familiar with the negotiations are indicating that an extension is unlikely, which will see OPEC+ moving ahead as planned to a 7.7 million b/d cut in August.

However, the US has reported more than 60,000 new coronavirus infections a day for the past four days, taking its total number of cases above 3.3 million, according to media reports. Brazil, India and South Africa have also reported an increase in cases, according to the World Health Organization.

The surging number of infections was likely to continue weighing on market sentiment as governments weigh the feasibility of further movement restrictions, clouding the near-term demand outlook.

Elsewhere, Libya, which holds Africa’s largest crude reserves, lifted a force majeure on oil loadings July 10, but the Libyan National Army a day later vowed to maintain a blockade until its demands are met.

Crude production in Libya has been reduced to around 70, 000-100,000 b/d in recent months from more than 1.1 million b/d before the blockade was imposed in January. Any short term increase in crude exports from Libya is likely to “add another unwanted level of supply-side uncertainty at an extremely critical point in the oil price recovery phase,” AxiCorp chief global markets analyst Stephen Innes said in a note July 13.