Yesterday’s risk-on sentiment boosted most risk-sensitive assets; however, oil prices lagged due to internal disagreements within OPEC+. ICE Brent futures closed nearly 2% lower amidst concerns regarding potentially large supply increases from OPEC+. This development follows Kazakhstan’s announcement that it cannot reduce oil production and intends to prioritize its national interests over OPEC+ commitments, according to commodity analysts Ewa Manthey and Warren Patterson at ING.
OPEC+ members are pushing for aggressive supply hikes in June
“Kazakhstan’s oil output has exceeded its designated target following an expansion project at the Tengiz field. This situation has fueled speculation that other OPEC+ participants are advocating for substantial supply increases in June. Earlier in the month, OPEC+ surprised the market by boosting supply by 411,000 barrels per day in May, exceeding the initially planned 138,000 barrels per day. This larger-than-anticipated increase occurs as demand forecasts are being revised downwards due to ongoing trade tensions. Further discord among OPEC+ members presents a significant downside risk, potentially triggering a price war.”
“Nevertheless, the front-month ICE Brent timespread continues to exhibit strong support. It is currently trading in backwardation at approximately US$1 per barrel, indicating tightness within the spot market. Data released yesterday by the Energy Information Administration revealed a slight increase in crude oil inventories, with stocks rising by 244,000 barrels over the past week.”
“This figure contrasted sharply with the 4.75 million barrel decrease reported by the American Petroleum Institute the previous day. Inventory changes for refined products were more encouraging, with gasoline and distillate stocks declining by 4.48 million barrels and 2.35 million barrels, respectively. This movement was driven by increased implied demand, as gasoline demand rose by 952,000 barrels per day week-on-week. Gasoline inventories have now decreased for eight consecutive weeks, reaching their lowest level since December. The RBOB crack spread increased following this data release.”
