Crude oil futures were mostly steady in mid-morning Asian trade June 3, consolidating overnight gains as investors continued to downplay the effect of a hike in monthly production quotas by the OPEC+ group.
At 10:38 am Singapore time (0238 GMT), the ICE August Brent futures contract was unchanged from the previous close at $117.61/b, while the NYMEX July light sweet crude contract fell 12 cents/b (0.1%) at $116.75/b.
The OPEC+ alliance on June 2 agreed to accelerate its production hikes through the summer, with quotas now rising by 648,000 b/d for July and another 648,000 b/d for August; about 50% higher than the typical 432,000 b/d monthly rise that it has implemented.
Oil prices rose in response to the deal, with analysts saying investors were unimpressed by the magnitude of the hike, while also recognizing the limitations that producers face.
“The oil market may continue to stay tight, with some of its members already struggling to hit [their] production targets in recent months, while the additional increased supply may be partially offset by the US and European summer driving demand,” IG market strategist Yeap Jun Rong said in a June 3 note.
The higher production quotas would have to be met almost entirely by Saudi Arabia and the UAE. Saudi Arabia has about 820,000 b/d of production upside that it can tap, while the UAE has about 800,000 b/d, according to Platts Analytics.
The alliance as a whole fell 2.6 million b/d short of its production targets in April, according to its own analysis seen by S&P Global.
“[The agreement] disappointed the market, with expectations going into the meeting that the group was discussing whether to try and fill the gap left by European sanctions on Russia oil,” ANZ Research analysts Brian Martin and Daniel Hynes said.
“The fact that Russia was left in the group suggests that production from the alliance will continue to struggle to meet even this modest increase in quota rises,” they added.
In the US, inventory draws were seen across the crude and refined products spectrum, in a sign of how demand continues to outstrip supply.
US crude oil inventories declined 5.07 million barrels in the week ended May 27 to 414.73 million barrels, US Energy Information Administration data showed June 2, marking a five-week low and fully 15% behind the five-year average for this time of year.
US gasoline stocks drew down 710,000 barrels to 219 million barrels over the same period, while distillate stocks fell 530,000 barrels to 106.39 million barrels.
Dubai crude swaps and intermonth spreads were higher in mid-morning trade in Asia June 3 from the previous close.
The August Dubai swap was pegged at $105.84/b at 10 am Singapore time (0200 GMT), up $3.81/b (3.73%) from the June 2 Asian market close.
The July-August Dubai swap intermonth spread was pegged at $2.82/b at 10 am, up 14 cents/b over the same period, and the August-September intermonth spread was pegged at $2.30/b, up 19 cents/b.
The August Brent-Dubai EFS was pegged at $11.60/b, up 31 cents/b.
Source: Spglobal.com
