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Brent crude LCOc1 futures fell 1.18%, or 47 cents, to $39.32 a barrel as of 0652 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 futures slid 1.80%, or 67 cents, to $36.62 a barrel.
Saudi Arabia and Russia, two of the world’s biggest oil producers, have agreed to support extending into July the 9.7 million barrels per day (BPD) in supply cuts backed in April by the OPEC+ group, comprised of the Organization of the Petroleum Exporting Countries and other major producers.
But they failed to agree on holding an OPEC+ meeting on Thursday to discuss the cuts, with OPEC sources saying it would be conditional on countries that have not complied with their targets so far deepening their cuts.
“The market has taken a look at that and said it’s getting more complicated to get that deal over the line,” said Lachlan Shaw, head of commodity research at National Australia Bank.
That would imply OPEC+ would go back to what they agreed in April, which was to ease their supply cuts to 7.7 million BPD from July, he said.
Further, Saudi Arabia and other Gulf producers Kuwait and the United Arab Emirates are not planning to extend voluntary additional output cuts of 1.18 million BPD after June, indicating crude supply could rise next month no matter what OPEC+ decides.
The huge build in distillate inventory in the United States, the world’s biggest oil user, also weighed on prices, said CMC Markets’ chief market strategist Michael McCarthy.
U.S. Energy Information Administration data on Wednesday showed gasoline stocks rose by 2.8 million barrels, nearly triple what analysts had expected, while distillate stocks rose by 9.9 million barrels or nearly four times more than expected.
The overall demand for diesel and similar fuels is down 13% from the year-earlier period over the last four weeks. Gasoline product supplied, a proxy for demand, picked up last week, but the four-week average still shows a 23% drop from the year-earlier period.
“It shows the recovery in gasoline and distillate demand is not V-shaped. It just reinforces that we’ve had this initial (price) recovery driven by supply-side discipline,” Shaw said.
