OIL PRICE - MELBOURNE. Oil prices fell on Thursday, reversing gains in the previous session, on concerns that supply will rise if major producers are unable to agree to extend the depth of output cuts that have supported recent gains.
Brent crude futures fell 1%, or 41 cents, to $39.38 a barrel as of 0157 GMT.
U.S. West Texas Intermediate (WTI) crude futures fell 1.6%, or 61 cents, to $36.68 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.
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However, 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 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.
"If they don't get that mechanism in place...that suggests the output cut for July will be abandoned."
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 output cuts of 1.8 million bpd after June, indicating crude supply will rise next month no matter what OPEC+ decides.
Surging fuel stockpiles and mixed demand data in the United States, the world's biggest oil user, also weighed on prices because of fears about a slow recovery in U.S. demand as states emerge from coronavirus lockdowns.
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.
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Gasoline demand, in terms of product supplied to retailers, rose for a third week by 296,000 bpd to 7.55 million bpd, the EIA data showed.
However, the amount of distillate fuel, including diesel used for shipping goods by train and tractor trailer, supplied to retailers fell by 548,000 bpd to 2.718 million bpd, the lowest weekly reading since 1992.
"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.
