Adedapo Adesanya
By Adedapo Adesanya
Crude oil fell on Monday after Saudi Arabia announced that it will not continue with its additional one million barrels daily cut after June.
Brent crude, the international benchmark, which traded above $42 per barrel early yesterday, fell by 3.71 percent or $1.54 to sell at $40.76 per barrel.
Likewise, the US West Texas Intermediate (WTI) crude futures, which rose above $40, also fell by 3.69 percent or $1.46 to trade at $38.09 per barrel.
The Organisation of the Petroleum Exporting Countries and its allies known as OPEC+ agreed over the weekend to extend the 9.7 million barrels per day cap to July as laggards like Nigeria and Iran promised to keep up.
Saudi Arabia, which had curtailed output by more than its agreed quota, said at a press conference Monday that those extra reductions will last just one month as planned, as the measures have served their purpose.
Saudi Energy Minister, Prince Abdulaziz bin Salman, said that this would not continue in July, when the Kingdom is expected to pump its OPEC quota, amid signs of demand recovery as nations around the world lift strict lockdown measures.
“The voluntary cut has served its purpose and we are moving on. A good chunk of what we will increase in July will go into domestic consumption,” Prince Abdulaziz said.
Saudi, which in May announced an extra cut of one million barrels per day in June, uses its crude for power generation typically increases in the hot summer months, the minister noted.
With this, it means Saudi Arabia will boost output in July to match its output OPEC quota while ending deeper, voluntary cut amid signs of global demand recovering, the Saudi energy minister said on Monday.
The OPEC’s largest producer sharply hiked its official selling prices and this hike erased almost all of the discounts the Kingdom made during its brief price war with Russia, with the steepest increases hitting July exports to Asia.
However, traders are still worried about a possible problem that could arise such as deteriorating relations between the United States and China.
The problem of a second wave of COVID-19 infections are still possible, which will mean government can order a second batch of lockdown. The return of US shale supply is also a big worry.
This is, however, minimal right now as Tropical Storm Cristobal in United States pushed offshore drillers to halt about a third of oil production, amounting to about 636,000 barrels of daily output, due to the storm.
The oil market continues to recover with China’s crude imports hitting a record high last month, while consumption in other major economies such as India is improving.
Also, Libya’s biggest oil fields are gradually resuming production after five months of shutdown due to civil war.
According to reports, output will start at an initial 30,000 barrels per day at Sharara and it will take three months to return to full capacity and supply from El-Feel also restarted.
