By Adedapo Adesanya
Crude oil erased previous losses to close higher on Thursday as traders continue to monitor whether producers will extend record output cuts when they meet next week.
The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, a group known as OPEC+, will hold discussions of possible extension to an existing cut next week.
Two months ago, the oil producers signed a deal to cut off about 10 percent of global supply from the market. The first phase of the agreement expires this month. There are calls for extending timeline of the phase one, which would be discussed when they meet on June 9.
Ahead of the virtual gathering, the Brent crude futures on Thursday were up by 20 cents or 0.5 percent at $39.99 per barrel, while the US West Texas Intermediate crude futures gained 4 cents or 0.11 percent to settle at $37.35 per barrel.
Saudi Arabia and Russia, two of the world’s biggest oil producers, want to extend cuts of 9.7 million barrels per day that major producers agreed to in April but a meeting suggested for Thursday was delayed over poor compliance from some producers.
Negotiations have been held up by Nigeria, Iraq, and Kazakhstan, which have repeatedly failed to keep to their cuts. Nigeria only met 19 percent of compliance, according to a recent survey, while Iraq met only 38 percent in May.
However, analysts noted that it will prove very difficult for oil dependent economies like Iraq and Nigeria, both struggling with a crippling economy, to want to extend current level of cuts.
They noted the current situation resembles tensions within the OPEC alliance a few months ago when Saudi Arabia and Russia could not reach an agreement to deepen cuts in response to coronavirus when prices started falling below $60 per barrel.
If OPEC+ does not agree on keeping current level of cuts, it means producers will go back to what they agreed in April, which was to ease their supply cuts to 7.7 million barrels per day from July.
The US Energy Information Administration (EIA) data also showed gasoline stocks rose by 2.8 million barrels, nearly tripling what analysts had expected and this could pose a serious threat for oil prices due to a likely resurgence of oversupply worries especially as demand is making recoveries after been affected by the COVID-19 pandemic.
Data showed that demand for diesel and similar fuels is down 13 percent compared to levels one year ago over the last four weeks.
Modupe Gbadeyanka