Oil declined as investors assessed reports that Russia and other OPEC+ nations are considering increasing production.
Futures in New York fell as much as 1% on Tuesday and Brent crude slipped after crossing $75 a barrel in Asia’s trading hours. While price indicators and inventory data show a pattern of demand outstripping supply, there are concerns that OPEC+ will hike output. The OPEC+ coalition will meet next week and Russia — which jointly leads the alliance with Saudi Arabia — was reported to consider proposing the group increase supply in August.
“Just the rumors that OPEC+ will consider adding additional production is enough to pull us back from the $75 mark,” said Gary Cunningham, director of market research at Tradition Energy.
Global progress in vaccination has underpinned a robust consumption recovery in the U.S., China and Europe, boosting crude prices. The market will remain tight through the summer, said Goldman Sachs Group Inc. head of commodities Jeff Currie in a Bloomberg TV interview. Market gauges are further corroborating that view, with one timespread for West Texas Intermediate expanding to the widest backwardation in seven years on Monday.
OPEC and its partners have maintained discipline toward restoring shuttered supplies during the pandemic. The roaring comeback in demand is now testing the patience of group members, which will gather on July 1 to weigh another hike.
“This everyone-gets-along story is going to end as people battle for market share,” said Edward Moya, senior market analyst at Oanda Corp.
The global supply deficit and further spikes in oil prices could loosen the lid that the U.S. shale industry has kept on their production. Saudi Arabia will want to avoid giving producers a reason to bring wells online, said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC.
“They don’t want to see shale come back quickly,” he said.
In the U.S., crude stockpiles are seen falling 3.5 million barrels last week, according to a Bloomberg survey of analysts. The industry-funded American Petroleum Institute will release its inventory data later Tuesday, while the U.S. government’s report is due Wednesday.
Traders will also look to testimony later Tuesday from Federal Reserve Chair Jerome Powell for the latest signals on U.S. monetary policy and inflation. Any hawkish commentary on inflation could strengthen the dollar, reducing the appeal of commodities priced in the currency.