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Oil futures tumbled on Wednesday after U.S. President Donald Trump said he was working on a strong response to China’s proposed security law in Hong Kong and as some traders doubted Russia’s commitment to deep production cuts.
Many worried that Russia may not agree to extending production cuts ahead of the meeting in less than two weeks between the Organization of the Petroleum Exporting Countries and its allies.
Brent crude LCOc1 fell 91 cents, or 2.5%, to $35.26 a barrel by 12:10 EST (1610 GMT) and U.S. West Texas Intermediate (WTI) crude CLc1 was down 87 cents, or 2.5%, at $33.48, after falling more than 5% in early trading.
“This is a market that has rallied rather strongly on cohesiveness that has emerged recently from the global oil producers,” said John Kilduff, partner at Again Capital LLC in New York.
“There seems to be a crack in the armour there,” he added.
The group known as OPEC+ is cutting output by nearly 10 million barrels per day (bpd) in May and June. Some question whether it will continue to do so as demand recovers after many countries ease coronavirus lockdowns.
“Russia appears reluctant to commit to any extensions that might be discussed at next month’s meeting,” Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a report.
(GRAPHIC: Demand/supply balance – here)
Gloomy forecasts over the economic impact of the pandemic also weighed on crude.
Economists estimate another 2 million Americans filed initial applications for unemployment insurance last week.
The U.S. Labor Department will report on Thursday.
The euro zone economy will probably shrink between 8% and 12% this year, European Central Bank President Christine Lagarde said, warning the outcome would be between medium and severe.
In another sign of weak fuel demand, Japan’s refineries operated at only 56.1% of capacity last week, the lowest since at least 2005.
(GRAPHIC: Weekly changes in petroleum stocks in the U.S. – here)
