By Geoffrey Smith
Investing.com — Oil prices retreated on Wednesday under the impact of fresh evidence that the massive build in crude stockpiles will take longer than expected to whittle away, even with a recovery in demand and sustained discipline on the part of producers.
The tone in crude has been weak since the American Petroleum Institute said late Tuesday that U.S. crude stocks rose by 3.9 million barrels, their third increase in the last four weeks and a development that was at odds with expectations for a modest net draw of 152,000 barrels.
The official government data for the week will be released at 10:30 AM ET, as usual. In addition to the usual focus on crude levels, attention will also be given to developments in gasoline and diesel demand, a proxy for U.S. economic activity that has become particularly sensitive given the stuttering recovery from April.
Commercial stockpiles around the world ballooned earlier in the year as demand collapsed due to the pandemic. OECD stockpiles, traditionally the key indicator for the Organization of Petroleum Exporting Countries, are some 141 million barrels above their five-year average, implying a significant supply overhang even if the OPEC+ producers extend their agreement to withhold 9.7 million barrels a day of oil from the market beyond the end of July.
Earlier Wednesday, OPEC’s latest monthly report indicated that there will be room for its members to ease their production constraints later in the year. It estimated global demand for its crude rising to 27.8 million b/d in the third quarter and to 31.2 million b/d by the final quarter of 2020.
OPEC members produced 24.20 mil b/d in May, by comparison, and that figure appears to be on course to rise only modestly in June: Russian news agency TASS reported Wednesday that compliance with the agreed cuts ran at 87% in the first two weeks of the month.
Elsewhere in the energy complex, natural gas futures at the Henry Hub complex ground out a new all-time low of $1.602 per mmBtu, as the OPEC report accepted that non-OPEC supply would rise by more than it previously thought – something that increases the flow of associated gas into the national pipeline system.
Oil Falls as OPEC Flags Stubbornly High Stockpiles
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