By Barani Krishnan
Investing.com - OPEC kingpin Saudi Arabia and top ally Russia seem to have trouble agreeing to longer output cuts if laggards in their pact don’t deliver on their commitments. Yet oil bulls refused to allow more than a token drop in U.S. crude prices on Thursday, in their continued push for $40 per barrel despite suspect fundamentals.
U.S. West Texas Intermediate futures were up 7 cents, or 0.2%, at $37.36 per barrel by 1:52 PM ET (17:52 GMT), keeping the U.S. crude benchmark on track to a 5% gain on the week.
London-traded Brent, the global benchmark for oil, rose 13 cents, or 0.3%, to $39.92. Brent hit a session peak of $39.38, reattempting Wednesday’s three-month high of $40.53.
Both WTI and Brent are down 40% on the year. But the U.K. benchmark is also up more than 100% from the end of April. Its U.S. peer has, meanwhile, gained 270% in a rally that increasingly feels out of step with market realities that have evolved since WTI’s crash to subzero prices in late April. Brent hit $40 per barrel earlier this week, raising further questions about the viability of such prices when demand for oil remains suspect.
“Certainly, the market is going to be prone to corrections on flows and noise,” Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C. “But I can only say that it appears that the dip has been consistently bought this week.”
The Saudis and Russians have agreed to support an extension into July of the 9.7 million barrels per day cuts agreed under their multinational OPEC+ agreement struck in April. But decision makers for the oil producing titans were also thinking of imposing conditions for countries that haven’t complied with their reduction quotas under the deal, sources familiar with the situation said.
Iraq has only achieved 49% compliance with agreed cuts while Nigeria had met just about 52%, data showed.
Weekly data on oil balances issued by the U.S. Energy Information Administration on Wednesday also showed lagging demand.
The EIA reported that U.S. gasoline inventory rose 2.8 million barrels last week, versus analysts’ forecast a rise of just about 1 million barrels.
More startling were distillate stockpiles led by diesel. These soared by 9.9 million barrels, compared with expectations for a build of about 2.7 million barrels. Distillate inventories alone have risen by more than 51 million barrels over the past eight weeks.
U.S. crude production is down nearly 2 million barrels from record highs of 13.1 million barrels per day in mid-March. And domestic crude inventories did drop by an unexpected 2.1 million barrels last week. But that decline was also offset by a build of 4 million barrels on the Strategic Petroleum Reserve, which represents emergency crude supplies held by the government.