On June 1, oil prices lost almost 1% as many traders hedged bets with the Organization of the Petroleum Exporting Countries (OPEC). They took that strategy after considering the Meeting that will happen later this month, discussing whether to extend the record production cuts beyond the end of June.
Brent crude lost 34 cents to settle at $37.50 a barrel on its first day of trading in the contract with August as the front month. West Texas Intermediate (WTI) crude futures for July delivery lost 32 cents to settle at $35.17 a barrel by 0123 GMT.
These price falls arise after the front-month Brent and WTI prices posted their biggest monthly gains in over nine years in May. The gains were supported by OPEC crude production plunging to its lowest in over 20 years. Demand is expected to recover as multiple nations emerge from the coronavirus lockdowns.
OCBC economist Howie Lee said that the current focus is much on OPEC+ meetings later in the week. In April, OPEC+ signed agreements to cut down their output by an unprecedented 9.7 million barrels per day (bpd) in May and June. They did that after the COVID-19 health crisis reduced demand drastically. Lee added:
“We might see a cautious pullback in (crude) prices given that downstream prices haven’t caught up … but if OPEC+ does come up with a three-month extension, there’s a possibility that prices may hit the $40 level.”
The rising tensions between China and the United States weighed on the global financial markets. Also, traders are keeping a wary eye on the riots that erupted over the weekend that have now affected many major cities around the United States.
Saudi Arabia is suggesting an extension of the record cuts from May and June up to the end of the year. However, sources told Reuters that it is yet to get support from Russia. Algeria currently holds the OPEC presidency. It has proposed an OPEC+ meeting that is planned for June 9-10 to be brought forward.
Algeria wants the meeting brought forward to facilitate the oil sales from countries like Iraq, Saudi Arabia, and Kuwait. Russia does not object to the meeting being brought forward to June 4. In the meantime, supply in North America is reducing as data obtained from Baker Hughes confirmed. That data showed that Canada and the US oil and gas rigs count plunged to a record low in the week that ended on May 29.