TOKYO (Reuters) – Oil prices fell on Wednesday on concerns about a possible second wave of coronavirus cases in countries easing lockdowns, which could prompt renewed movement restrictions, while industry data showed U.S. crude inventories are still rising.
The concerns overshadowed a further call by Saudi Arabia for larger production cuts to balance the market following a virus-induced demand slump, after the Organization of the Petroleum Export Countries’ (OPEC) biggest producer said earlier this week it planned to add to output cuts again.
Brent crude LCOc1 dropped 40 cents, or 1.3%, to $29.58 a barrel by 0658 GMT, having risen 1.2% on Tuesday.
West Texas Intermediate crude futures fell 10 cents, or 0.4%, to $25.68 a barrel, after rising 6.8% in the previous session.
“Oil prices are being undercut by fears that a resurgence of the coronavirus may prompt countries to keep lockdowns in place for longer, hurting global economic activity and energy demand,” said Avtar Sandu, manager, commodities at Phillip Futures in Singapore.
U.S. infectious disease expert Anthony Fauci on Tuesday told Congress that easing coronavirus lockdowns may set off new outbreaks of the illness, which has killed 80,000 Americans and badly damaged the world’s biggest economy and oil consumer.
New outbreaks have been reported in South Korea and in China, where the health crisis started before spreading around the world, prompting governments to lock down billions of people, devastating economies and demand for oil.
On the supply side, Saudi Arabia’s cabinet has urged OPEC+ countries to reduce oil output further to restore balance in global crude markets, the country’s state news agency reported early on Wednesday.
Kuwait Petroleum Corp (KPC) will export less crude oil in June by requiring customers to cut 5% from the volume of their cargoes in line with the so-called operational tolerance clause in their contracts, two sources with knowledge of the matter told Reuters on Wednesday.
On Monday, Saudi Arabia said it would add to planned cuts by reducing production by a further 1 million barrels per day (bpd) next month, bringing output down to 7.5 million bpd.
OPEC and other producers such as Russia – a group known as OPEC+ – agreed to cut output by 9.7 million barrels per day (bpd) in May and June, a record reduction, in response to a 30% fall in global fuel demand.
In the United States, inventories of crude oil rose by 7.6 million barrels last week to 526.2 million barrels, against analysts’ expectations for an increase of 4.1 million barrels, the American Petroleum Institute (API) said on Tuesday.
Still, stocks of crude at the Cushing, Oklahoma, delivery hub fell by 2.3 million barrels, API said, which, if confirmed by official data, would be the first drawdown since February, according to ING Economics.
“Concerns over hitting storage capacity have eased, as we see demand gradually recovering, along with supply cuts hitting the market,” ING said in a note, pointing to the decline in Cushing stocks.
Official storage data from the U.S. Energy Information Administration is due later on Wednesday.
Reporting by Aaron Sheldrick; Editing by Richard Pullin and Christian Schmollinger