(Bloomberg) — Oil’s recovery from a historic crash is being frustrated by a standoff between some of the world’s biggest crude producers.
The OPEC+ alliance still hasn’t set a date for its next meeting that’s intended to approve an extension of its deepest output curbs aimed at propping up crude prices. That’s because group leaders Saudi Arabia and Russia have lost patience with the errant behavior of the next-biggest member, Iraq, according to people familiar with the matter.
The producer group’s unity had helped drag oil back from its plunge into subzero prices in April, with most main players delivering their agreed share of output curbs. But some reneged on their commitments, and now Riyadh and Moscow are warning that they may phase out the supply curbs if those producers don’t change their ways.
Delaying the meeting “is for Saudi Arabia to have a chat with the rest of OPEC+ to give them time to throw trial balloons,” said Bart Melek, head of commodity strategy at Toronto Dominion Bank. “There’s a fair amount of confidence that the mid-month meeting is likely to extend cuts,” he said.
Saudi Arabia and Russia have already reached a preliminary deal to extend output curbs for an extra month. Riyadh has delayed the release of its July crude pricing until Sunday at the earliest, according to people with knowledge of the situation.
Complicating their task is the threat of rising U.S. shale output, which has been encouraged by oil’s rally. Higher prices have already spurred some producers to bring wells back online. EOG Resources Inc. and Parsley Energy Inc. are preparing to ramp up production just weeks after turning off the taps.
“It’s not an easy exercise for OPEC to balance the market,” said Olivier Jakob, managing director of consultants Petromatrix GmbH. The Saudis likely realize “they need to be careful about not helping the U.S. crude oil to come back too quickly.”
While oil prices have rebounded rapidly since mid-April, the rally is faltering amid gathering headwinds. Civil unrest across America is also complicating the economic recovery from the coronavirus pandemic and risking a second wave of infections.
U.S. diesel demand fell to a 21-year low last week and gasoline stockpiles swelled, according to Energy Information Administration data, suggesting that fuel consumption isn’t recovering as quickly as anticipated.
Further stymieing demand, the White House is suspending passenger flights to the U.S. by Chinese airlines as relations between the two leading economies deteriorate.
- West Texas Intermediate for July delivery settled 12 cents higher at $37.41 a barrel in New York, after closing at the highest level since early March on Wednesday.
- Brent for August settlement rose 20 cents to $39.99 a barrel. The global benchmark crude on Wednesday had traded above $40 a barrel for the first time since early March.
More oil-market news:
- It’s too early for a shale obituary as U.S. oil wells from Texas to North Dakota return just weeks after oil prices tumbled into subzero territory, the head of the International Energy Agency warned.
- Across the oil industry, leaders of failing companies are hitting the jackpot even in the aftermath of Covid-19 lockdowns that destroyed energy demand, crushed prices and threw almost 100,000 rank-and-file employees out of work.
- Oil traders and analysts scrutinizing U.S. inventory data for signs of a market recovery are being confronted by an odd situation: the math just doesn’t add up.
–With assistance from James Thornhill and Annmarie Hordern.
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