Oil hits $40, cools off as doubts emerge over next step on Opec cuts

Oil fell after touching its highest since March at more than $40 a barrel on Wednesday, as doubts emerged about the timing and scale of a potential extension to the oil supply pact between Opec and its allies.

Saudi Arabia and Russia have a deal to extend the cuts by a month, but a policy meeting on Thursday rather than later in June is unlikely, sources said. Oil earlier dropped after Bloomberg reported that the Thursday meeting was in doubt.

“Prices were firm so far this week on the news that the meeting was earlier,” said Olivier Jakob, oil analyst at Petromatrix. “The retracement today is definitely due to the latest headlines on Opec.”

Brent crude futures for August were down 32 cents, or 0.8 per cent, at $39.25 by 1400 GMT, having earlier touched their highest since March 6 at $40.53. West Texas Intermediate (WTI) crude for July fell 5 cents, or 0.1 per cent, to $36.76.

Oil had been lifted earlier in the day by the American Petroleum Institute’s report on Tuesday that U.S. crude inventories fell by 483,000 barrels. The government's official supply report is due later on Wednesday.

Both benchmarks have surged in recent weeks, with Brent more than doubling after hitting a 21-year low below $16 in April, when US crude turned negative.

The Opec+ group, comprising the Organization of the Petroleum Exporting Countries and allies including Russia, is cutting output by 9.7 million barrels per day (bpd) — about 10 per cent of global output before the coronavirus crisis — in May and June to support prices.

The talks have been focusing on keeping the current level of cuts beyond June. But a one-month extension would be shorter than some sources have said was under consideration.

Oil also weakened on reports that Gulf Opec producers are not discussing extensions to their deeper voluntary production cuts beyond June.