Oil prices fall as U.S. fuel demand remains weak

Andrew Cummings
May 29, 2020

July Brent crude futures LCOc1 fell 33 cents to $34.96 a barrel by 1:36 p.m. EDT (1736 GMT) However, the more active August contract gained 12 cents to $36.16.

"Sustaining these price declines will hinge, to a significant extent, on Trump's expected comments today that could determine how the oil market finishes this week and month", said Jim Ritterbusch of Ritterbusch and Associates. US West Texas Intermediate (WTI) crude was down $1.28, or 3.8 per cent, at $32.43.

The market was buoyed by comments from Russian Federation reporting its oil output had almost dropped to its target of 8.5 million barrels per day (bpd) for May and June under its supply cut deal with the Organization of the Petroleum Exporting Countries (OPEC) and other leading producers, a grouping known as OPEC+.

The group known as OPEC+ is cutting output by almost 10 million barrels per day (bpd) in May and June, but the question is whether it will continue to do so as demand recovers after the easing of coronavirus lockdowns in many countries.

"As is often the case during a run-up up to an OPEC+ meeting, the focus is squarely on Russia's commitment and understandably so as historically they have been the laggard within the OPEC+".

Data from oil analytics firm Kpler showed that floating storage volumes in Chinese waters came off a peak of 35.4 million barrels on May 23 to 29.4 million barrels as of May 26. The big producers agreed in April to cut output by almost 10 million bpd for May and June.

"It just indicates that demand recovery is progressing but it's not strong enough yet to be really self-sustaining, " National Australia Bank's Head of Commodity Research, Lachlan Shaw, said.

US crude inventories are forecast to have fallen for a third week last week, according a Reuters poll of analysts.

With WTI holding above $30, OPEC+ will be closely watching to see whether the US oil shale oil producers, who have breakeven prices in the high $20 and low $30 dollar range, step up production.

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