Oil Falls as Expectations Rise for OPEC to Ease Production Cuts

A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Okla., on Sept. 15, 2015. Nick Oxford/File Photo/Reuters

Oil prices dipped July 13 as traders considered factors such as a surge in COVID-19 infections globally and a much-anticipated technical meeting of representatives of the Organization of the Petroleum Exporting Countries (OPEC), at which a push is expected to lift production curbs, according to sources cited by The Wall Street Journal.

U.S. crude fell 2.4 percent, to $39.59, while Brent crude dropped 2.3 percent to $42.26 per barrel.

The World Health Organization (WHO) reported a record daily increase in global COVID-19 cases on July 12, with the total up by more than 230,000. Infections surged in the United States over the weekend, with Florida reporting a rise of more than 15,000 new cases in 24 hours, a record for any state. Still, daily deaths due to the disease in the United States are down from their April 21 peak of 2,748 to 380 on July 12, according to official figures compiled by Worldometers.

Traders have been eyeing OPEC’s Joint Ministerial Monitoring Committee (JMMC) meeting on July 14 and July 15, at which OPEC and its allies including Russia, a group known as OPEC+, will recommend levels for future supply cuts. Earlier, in response to plummeting demand due to the pandemic, OPEC+ cut output by a record 9.7 million barrels per day for May, June, and July.

A well head and a drilling rig in the Yarakta Oil Field, owned by Irkutsk Oil Company in Irkutsk Region, Russia, on March 11, 2019. Vasily Fedosenko/Reuters

OPEC delegates cited by The Wall Street Journal said that a group of oil producers led by Saudi Arabia would push for an increase in crude production starting in August. The Saudi-driven proposal was reported to amount to an increase of OPEC+ daily oil production by 2 million barrels, up to 7.7 million barrels per day.

OPEC Secretary-General Mohammad Barkindo said July 13 that the easing of pandemic-driven lockdowns has led to a gradual rise in oil demand, bringing the oil market closer to balance.

The Paris-based International Energy Agency (IEA) bumped up its 2020 oil demand forecast on July 10 but warned that the spread of COVID-19 posed a risk to the outlook.

The Paris-based IEA raised its forecast to 92.1 million barrels per day, up 400,000 barrels per day from its outlook last month, citing a smaller-than-expected second-quarter decline.

“While the oil market has undoubtedly made progress ... the large, and in some countries, accelerating number of COVID-19 cases is a disturbing reminder that the pandemic is not under control and the risk to our market outlook is almost certainly to the downside,” the IEA said in its monthly report.

The easing of lockdown measures in many countries caused a strong rebound to fuel deliveries in May, June, and likely also July, the IEA said.

Demand for crude in 2021 will likely be 2.6 million barrels below 2019 levels, with kerosene and jet fuel due to a drop in air travel, accounting for three-quarters of the shortfall, the IEA noted.

Reuters contributed to this report.