(Bloomberg) — Oil traded without direction for a second day as the market waited to see if OPEC and its allies will extend record production curbs.
Futures in New York were steady after closing down 0.1% on Monday. Saudi Arabia favors keeping the curbs — which are set to start easing from July — in place for an extra one to three months, a delegate said. Any changes to the OPEC+ deal will hinge on negotiations between Moscow and Riyadh, with Russia saying last week that it wanted to start winding down the cuts next month.
Violent protests continued to rock the U.S., complicating its economic recovery from the coronavirus, with President Donald Trump promising to deploy the military to quell the unrest. Still, the riots have yet to have a major impact on financial markets and were balanced by data suggesting American manufacturing activity is beginning to stabilize at a depressed level.
The OPEC+ discussions are happening against what’s still a very uncertain demand backdrop. Tankers idling off the Chinese coast waiting to unload are evidence of the Asian giant’s rapid recovery but in other parts of the world the rebound is uneven. Road fuel consumption is slowly rising as restrictions are lifted, but the restoration of air traffic looks set to take much longer.
If OPEC+ “can agree on a three-month extension for the current output cuts, there’s a real chance that the market could flip from a severe oil glut this quarter to a supply deficit in the third quarter,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. That would help push Brent toward $40 a barrel, he said.
West Texas Intermediate for July delivery rose 0.2% to $35.52 a barrel on the New York Mercantile Exchange as of 10:08 a.m. in Singapore. Brent for August delivery climbed 0.6% to $38.54 on the ICE Futures Europe exchange after advancing 1.3% on Monday.
OPEC’s delivery of the production cutbacks, while strong overall, was undermined by its habitual laggards, suggesting the deal with be tough to enforce if prices keep rising. The group implemented around three-quarters of the cuts pledged in May, according to a Bloomberg survey, but Iraq and Nigeria only executed less than half of their agreed reductions.
Meanwhile, Chinese government officials told major state-run agricultural companies to pause purchases of some American farm goods including soybeans, according to people familiar with the situation. The move is a sign the deteriorating relations between the two nations could threaten their trade deal, which includes pledges for China to increase its purchases of U.S. energy.
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