Oil Looks Past Fundamentals To June 5th OPEC Meeting

As the new week and month begins crude oil eased by 41 cents as the US dollar gained momentum in the Asian session while Brent oil dipped 23 cents to 65.27. Market focus has been on comments from OPEC members ahead of the June 5^th meeting. Many members are trying to push Saudi Arabia into lower production quotas to drive prices back to some reasonable range.  The Organization of the Petroleum Exporting Countries could flood the market with oil for years if it opts to do nothing to alter its output ceiling at a highly-anticipated meeting in June. Questions about OPEC’s production are being raised as the oil cartel is set to call its first meeting since November 2014. Back then, OPEC’s vow not to cut output sent crude-oil prices plunging. Although prices have recovered somewhat in recent weeks, they are still sharply off their 2014 peak levels.

OPEC has maintained a collective production ceiling of 30 million barrels a day since it did away with individual country quotas about three years ago, and analysts expect the oil cartel to stand pat on that target when members meet on June 5 in Vienna.

The US Department of Energy’s EIA, said in its weekly crude oil report that inventory levels during the week ended May 22 fell by 2.8 million barrels to 479.4 million barrels. Analysts polled by Bloomberg had anticipated inventory levels in the country would fall by 1.2 million barrels during the week. Preliminary data from the American Petroleum Institute (API) had estimated that inventory levels had increased by 1.3 million barrels during the week.

Fears regarding the recovery having been premature linger on. Some experts fear that with WTI having been able to sustain itself near the $60 per barrel price range, rigs, which were made idle as a result of low prices, could reopen and add to the US’ supply.

Goldman Sachs said in a recent report to investors that it feared that “given improved returns, and with costs down by at least 20 percent,” US oil producers could ramp up their production. The report from the EIA showed that the US produced 9.566 million barrels per day during the week ended May 22, higher than the 9.26 million barrels per day pumped out in the earlier week, and 8.47 million barrels per day pumped out around the same time last year.

Moreover, according to a recent Bloomberg report by Naomi Christie, the signals being provided by the super tanker industry do not support the recent recovery in the market. Some analysts have estimated that the Organization of Petroleum Exporting Countries (OPEC) will have half a billion barrels of crude oil on its way to buyers at the beginning of next month, with 20 million barrels being stored on ships. The increased demand for super tanker services points toward the supply glut recovery to not have yet begun.