A day after an OPEC+ committee recommended it lower its production cuts next month, oil futures dropped in Thursday’s trading. But prices remained above the $40 a barrel mark.
West Texas Intermediate crude for August dropped 45 cents or 1.1% to settle at $40.75 a barrel in trading on the New York Mercantile Exchange. Meanwhile, September Brent crude, considered the global benchmark lost 42 cents or 1% and finished the day on the ICE Futures Europe at $43.37 a barrel.
In both benchmarks, the declines followed to straight sessions of price gains. Oil ended at a more than four-month high Wednesday after the OPEC+ alliance agreed to allow record production cuts of 9.7 million barrels per day to decrease to 7.7 million barrels per day starting August, in line with a previous OPEC+ agreement to gradually taper the reductions.
However, at the same time, countries that failed to abide by their quota limits since the latest pact began in May are required to cut output even more in August to compensate for their overproduction.
“With the OPEC+ decision behind us, oil futures are continuing to trade with a high degree of correlation to the equity markets as the biggest threat to risk assets here, including oil, is another wave of economic shutdowns due to the latest resurgence in the COVID-19 outbreak,” said Tyler Richey, co-editor at Sevens Report Research. “Case in point, oil rallied on the positive vaccine headlines earlier this week but pulled back with global stocks after disappointing retail sales data from China overnight.”
China’s retail sales fell 1.8% year-over-year in June, though its economy grew 3.2%in the second quarter from a year earlier.
The supply dynamics of the oil market are “pretty stable right now,” Richey told MarketWatch. “However the demand input to the oil economics equation is where the unknowns lie.”
”If the spike in COVID-19 cases threatens the global economic reopening/normalization process, then we expect a pullback in oil,” he said. “Conversely, if everything remains on track and growth continues to rebound relatively swiftly as we have seen in recent months, then a demand-driven rally in WTI” back towards the $50 a]barrel level will become increasingly likely.
“Though OPEC+ appears to have the market under control at present, some questions do remain: will production discipline be maintained at a high level? Will the stragglers actually implement their promised cuts? How quickly will the cartel be able to react if the demand outlook worsens again? After all, no matter which way one looks at it, a Brent price of below $45 per barrel is anything but good news for OPEC,” said Eugen Weinberg, analyst at Commerzbank, in a note.
Local oil and gas stocks followed suit with SandRidge Energy falling 5 cents or 3.65% to end the day at $1.32. Devon Energy dropped 7 cents or less than 1% to finish at $10.67 per share.
ConocoPhillips dropped 3 cents to $41.59. EOG Resources fell 73 cents or 1.5% to $47.82 while Marathon Oil added 3 cents to hit $5.72.
ONEOK added two cents to settle at $28.85. Phillips 66 slipped 59 cents or 1% to hit $64.87.
On the Utilities Sector, American Electric Power added 41 cents and finished the day at $85.09 per share.