Oil prices have fallen as enthusiasm for a possible OPEC+ agreement to continue June’s production cuts for more months subsides.
Rystad Energy’s Senior Oil Markets Analyst, Paola Rodriguez Masiu, has commented on the morning's developments:
"The rally that oil prices have been enjoying since Friday came to a halt today as the deal to extend the cuts that saved the markets from self-destruction was threatened by the errant behaviour of some OPEC+ members.
Saudi and Russia are pushing hard, not just asking Iraq, Nigeria, and other laggards to ramp-up compliance but also pushing for deeper cuts in the months ahead to make up for past non-compliance.
This is a déjà vu of a few months earlier when the OPEC+ alliance broke over Saudi Arabia making conditional its engagement to Russian participation.
It is unlikely that Iraq and Nigeria, both struggling with a crippling economy with give up to the kingdom and the Kremlin demands to hike their quotas. No wonder why the market is trembling.
Prices also received headwinds from the US, as data reported yesterday by the DOE suggest that easing the lockdown is not having the desired effect in the US demand. The figures pointed out that US diesel demand fell to a 21-year low and gasoline stockpiles swelled. In addition, civil unrest across the US intensified worries about a slowdown in the economic recovery due to a possible second wave of infections.
Brent prices have reached the US$40 mark because of market enthusiasm that June’s generous production cuts would be continued by OPEC+ in July and August, instead of gradually fall as per the original agreement. As an early meeting did not get confirmed and hopes did not , so far, materialise, prices naturally deflate now. Speculation is the price mover this week, not that many changes in fundamentals. You can expect prices to now stay below US$40, unless new rumours surface or an actual meeting is scheduled."
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