Oil prices fall on concerns supply to rise as producers wrangle on cuts

By Sonali Paul
MELBOURNE, June 4 (Reuters) - Oil prices fell on Thursday,
reversing gains in the previous session, on concerns that supply
will rise if major producers are unable to agree to extend the
depth of output cuts that have supported recent gains.
Brent crude LCOc1 futures fell 1%, or 41 cents, to $39.38
a barrel as of 0157 GMT.
U.S. West Texas Intermediate (WTI) crude CLc1 futures fell
1.6%, or 61 cents, to $36.68 a barrel.
Saudi Arabia and Russia, two of the world's biggest oil
producers, have agreed to support extending into July the 9.7
million barrels per day (bpd) in supply cuts backed in April by
the OPEC+ group, comprised of the Organization of the Petroleum
Exporting Countries and other major producers. However, they failed to agree on holding an OPEC+ meeting on
Thursday to discuss the cuts, with OPEC sources saying it would
be conditional on countries that have not complied with their
targets deepening their cuts.
"The market has taken a look at that and said it's getting
more complicated to get that deal over the line," said Lachlan
Shaw, head of commodity research at National Australia Bank.
"If they don't get that mechanism in place...that suggests
the output cut for July will be abandoned."
That would imply OPEC+ would go back to what they agreed in
April, which was to ease their supply cuts to 7.7 million bpd
from July, he said.
Further, Saudi Arabia and other Gulf producers Kuwait and
the United Arab Emirates are not planning to extend voluntary
output cuts of 1.8 million bpd after June, indicating crude
supply will rise next month no matter what OPEC+ decides.
Surging fuel stockpiles and mixed demand data in the United
States, the world's biggest oil user, also weighed on prices
because of fears about a slow recovery in U.S. demand as states
emerge from coronavirus lockdowns.
U.S. Energy Information Administration data on Wednesday
showed gasoline stocks rose by 2.8 million barrels, nearly
triple what analysts had expected, while distillate stocks rose
by 9.9 million barrels, or nearly four times more than expected.
Gasoline demand, in terms of product supplied to retailers,
rose for a third week by 296,000 bpd to 7.55 million bpd, the
EIA data showed.
However, the amount of distillate fuel, including diesel
used for shipping goods by train and tractor trailer, supplied
to retailers fell by 548,000 bpd to 2.718 million bpd, the
lowest weekly reading since 1992.
"It shows the recovery in gasoline and distillate demand is
not V-shaped. It just reinforces that we've had this initial
(price) recovery driven by supply side discipline," Shaw said.