Oil near $42 ahead of Opec+ review of easing output curbs

Bloomberg

Oil fell below $42 a barrel in New York at the start of a week that will see Opec+ gather to assess its supply deal as countries struggle to contain the virus that’s hurt economies and fuel demand globally.
The Joint Ministerial Monitoring Committee — the panel which reviews the deal between the Organisation of Petroleum Exporting Countries (Opec) and its allies — is poised for a planned meeting on Wednesday, with the group starting to return some crude supply to the market this month following deep reductions.
Opec+ will meet as pockets of the market have started to weaken in recent weeks. Futures for the Middle East’s Dubai benchmark are trading lower now than for future months, known as contango, which indicates oversupply. For the global Brent benchmark, that structure was the weakest since May.
Oil has largely held above $40 in recent weeks as weakness in dollar has helped support headline prices. However, the market is still facing headwinds including rising virus infections and fraying US-China tensions, which may derail a nascent demand recovery. On Friday, the US seized four tankers carrying Iranian gasoline bound for Venezuela in an unprecedented move that carries the potential to destabilise global oil shipments if Iran retaliates.
Opec+ will seek “to keep compliance high,” said Ole Hansen, head of commodities strategy at Saxo Bank. “Now is most certainly not the time to talk about bringing more barrels back to the market.”
Opec+ is planning to return about 1.5 million barrels a day this month after trimming roughly 10% of global supply following a crash in demand due to the pandemic. Oil exports from alliance member Oman fell 14% in July from a month earlier, according to a statement from the Ministry of Oil & Gas. Iraq has also made its strongest commitment yet to implement deep output cuts.
“Between Opec+ production cuts and reduced US output, the crude market is broadly balanced,” the GZC Strategic Commodities Fund wrote in a note to clients. “Main risks remain to us that Opec+ switches to a market share strategy, rather than a price management one”