Oil Rally Cools as OPEC Shifts Into Higher Production Gear

Oil prices remained down in a late-week swoon on Friday that broke with two straight weeks of strong gains, as investors reacted pessimistically to news that OPEC will be rolling back on production cuts.

New York-traded West Texas Intermediate, the benchmark for U.S. crude futures, settled down 16 cents, or 0.4%, at $40.59 per barrel.

London-traded Brent, the global benchmark for oil, fell 24 cents, or 0.6%, to $43.13.

For the week, WTI ended virtually flat while Brent showed a loss of nearly 0.3%.

The run-up in crude prices has slowed since Thursday after the Organization of the Petroleum Exporting Countries announced that next month it would start rolling back the 20% production cuts it had maintained since the start of May.

For granularity, that meant that the Saudi-led and Russia-assisted OPEC+ alliance will withhold 7.7 million barrels a day from the market from August onward, compared with the 9.6 million the group held back in July.

Investors are assessing whether “a steady string of downbeat crude demand headlines will persist over the coming weeks”, said Ed Moya of New York-based OANDA, an online trading platform.

“Fuel consumption is not rebounding strongly,” Moya added, touching on arguments by Reuters oil analyst John Kemp in a blog posted Friday.

Kemp said fuel traders and refiners were becoming more pessimistic about the outlook for the global economy and transportation for the rest of this year, even as the crude producers in OPEC+ try to push oil prices higher.

“OPEC+ is anxious to see higher crude prices as soon as possible but its ambition is likely to be thwarted in the short term by the renewed softness in fuel consumption,” Kemp wrote.

“Price premiums for gasoline and diesel over crude have been flat or falling for almost four weeks since June 23 amid growing anxiety about a resurgence in the coronavirus and a new round of lockdowns.”

Surges in coronavirus infections are slowing a recovery in fuel use and raising concern that it could be years before consumption rebounds from the effects of the pandemic.

The United States reported at least 75,000 new COVID-19 cases on Thursday, a daily record. Spain and Australia reported their steepest daily jumps in more than two months, while cases continued to soar in India and Brazil.