Russia has been reported to have opposed any proposal to deepen OPEC-led production cuts, which has led to crude oil prices falling sharply since this week, snapping the longest winning streak this year.
Bloomberg reports that Russia doesn’t want to change the current deal because any further supply curbs would send the wrong message to the market, quoting government officials. Similarly, the U.S. dollar strengthened, reducing the appeal of commodities denominated in the currency.
Russia “pretty much threw cold water” on rumours of additional cuts, Bob Yawger, director of the futures division at Mizuho Securities USA in New York told Bloomberg.
Futures dropped as much as 3.9 percent in New York after eight straight sessions of gains as traders expect the American Petroleum Institute issue its weekly U.S. inventory numbers Wednesday.
While prices have surged during the past week, oil remains in a bear market amid concerns that rising global supply will offset the output cuts from the Organization of Petroleum Exporting Countries and its partners. Libya and Nigeria, which are exempt from the agreement, accounted for half of the group’s production boost last month, according to data compiled by Bloomberg.
“Now we’ll see if this rally was based on loose expectations that there could’ve been some agreement or additional cuts, or if it was a rally on short covering,” Mizuho’s Yawger said.
West Texas Intermediate for August delivery was down $1.71 to $45.36 a barrel on the New York Mercantile Exchange at 10:48 a.m. in New York. Tuesday’s transactions will be booked Wednesday for settlement purposes because of the U.S. Independence Day holiday. Prices gained almost 11 percent in the eight days through Monday.
Brent for September settlement was at $48.05 a barrel on the London-based ICE Futures Europe exchange, down $1.56. The contract fell 0.1 percent to $49.61 on Tuesday, the first decline in nine sessions.
Deepening cuts would suggest that OPEC, Russia and their allies are nervous that the pact to reduce output by a combined 1.8 million barrels a day through March 2018 isn’t doing enough to support prices, one of the Russian officials said.
“Any opposition to deeper output cuts supports the doubters of the effectiveness of the supply deal, fueling bearish oil market sentiment,” said Norbert Ruecker, head of commodities research at Julius Baer Group Ltd. in Zurich.
U.S. crude inventories probably shrank by 2.5 million barrels last week, according to the median of four estimates in a Bloomberg survey before the government releases its report. Oil inventories are also expected to decline by about 1 million barrels a day in the second half, according to a report.