Oil drops on U.S. inventories and doubts over output cuts

Oil drops on U.S. inventories and doubts over output cuts

Brent crude futures eased by 29 cents to $39.50 a barrel by 0839 GMT, heading for its first fall in six sessions.

Opec+ oil producers could still hold a virtual ministerial meeting this week if Iraq and others that have not fully complied with current oil supply cuts agree to boost their adherence, three Opec+ sources told Reuters on Thursday. The contract climbed to as high as US$40.53, the highest since March 6, after gaining 3.3% on Tuesday.

Oil turned lower after US government data showed fuel demand isn't recovering as quickly as first believed.

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Buhari, in separate letters to both chambers last Thursday, had said the revised N10.509trn 2020 budget was predicated on oil price benchmark of $25per barrel as against $57 per barrel fixed for the earlier one passed last December. U.S. West Texas Intermediate (WTI) crude for July gained 80 cents, or 2.2%, to $37.61.

Both benchmarks have surged in recent weeks, with Brent more than doubling after hitting a 21-year low below $16 in April, when United States crude turned negative.

Saudi Arabia and Russian Federation, 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 (OPEC) and other major producers.

According to sources, the alliance's ministers could extend this level of reduction after June, while earlier they meant to relax restrictions.

The DOE inventory data today was mixed with crude oil inventories showing a surprise drawdown of -2.07 million barrels vs. +3.0 million build estimate.

"The market is very fluid and given the uncertainty around the trajectory of demand recovery versus the risks of a second wave of the virus, OPEC has to be nimble", said Amrita Sen, co-founder of Energy Aspects.

The rise in gasoline and distillates inventories is also a concern because it indicates low demand, which can only mean we're not likely to see a V-shaped recovery in the economy.

Those figures still show the USA stockpiles remain high and are forecast to have risen for a second week in a row.

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