Oil extended its drop after a U.S. industry report signaled crude inventories swelled for the first time in three weeks, raising fresh concerns about excess supply.
Futures fell 3.8% in New York, putting the market on track for its first back-to-back daily decline in three weeks. The American Petroleum Institute reported that stockpiles expanded by 8.73 million barrels last week, according to people familiar with the data. If confirmed by government figures on Thursday, it would be the biggest increase this year.
Oil’s rally started to falter Wednesday after Moscow signaled that it wanted to scale back supply cuts pledged under the OPEC+ agreement from July, but Russian President Vladimir Putin and Saudi Arabia’s Mohammed bin Salman later reiterated their cooperation to the deal ahead of a June 9-10 meeting.
Oil is still up almost 70% this month as supply curbs trim a global glut and pockets of demand emerged after the easing of lockdown restrictions. The physical market is showing signs of recovery, with refiners across Asia buying distressed cargoes, while the top U.S. infectious disease expert said there is a chance that a coronavirus vaccine will be available by the end of the year.
However, the damage inflicted by the pandemic continues to reverberate across the industry, with Chevron Corp. planning a 10% to 15% reduction in its global workforce this year, the biggest cut to headcount yet among majors. Relations between Washington and Beijing deteriorated further after the U.S. said it could no longer certify Hong Kong’s autonomy from China.
“Uncertainty is still lingering around OPEC+ cuts going forward, adding bearishness to oil prices,” said Howie Lee, an economist at Oversea Chinese Banking Corp. in Singapore. “Another factor is the U.S.-China tension build-up, and we might see prices remaining volatile in the short-term as a result.”
U.S. gasoline stockpiles rose by 1.12 million barrels last week, while supplies at the storage hub of Cushing, Oklahoma, fell by 3.37 million, the API reported. The Energy Information Administration is expected to report nationwide crude inventories decreased by 1.9 million barrels, according to a Bloomberg survey.
Russia and Saudi Arabia have agreed to closely coordinate on the OPEC+ deal — a pledge to reduce output by almost 10 million barrels a day. As part of that pact, cuts would slowly taper from July.