Oil prices experienced a second consecutive day of decline on Wednesday due to several factors. Firstly, a report revealed a significant surge in crude stockpiles in the United States, which is the world’s largest consumer of oil. Additionally, there were indications that major oil producers are unlikely to make any changes to their output policy at an upcoming technical meeting. As a result, Brent crude futures for May dropped by 0.9 percent to $85.51 a barrel, while the more actively traded June contract declined by 0.8 percent to $84.95. Likewise, U.S. West Texas Intermediate (WTI) crude futures for May delivery fell by 0.8 percent to $80.98.
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The decline in oil prices this week follows a previous surge that saw them reach their highest level since October. However, prices still remain about 3 percent above the average closing price in the first week of March. Analysts attribute the drop in oil prices to the sharp increase in U.S. crude inventories and the expectation that OPEC+ (Organization of the Petroleum Exporting Countries and its allies) will maintain its current output policy, leading to profit-taking after a strong rally in mid-March.
According to market sources, U.S. crude oil inventories rose by 9.3 million barrels in the week ending March 22. Additionally, distillate inventories increased by 531,000 barrels, while gasoline stocks declined by 4.4 million barrels. Official government data will be released on Wednesday to provide a more comprehensive picture. In anticipation of the upcoming meeting, three sources from OPEC+ revealed that there are no plans to change the oil output policy until a full ministerial gathering takes place in June.
OPEC+ upcoming meeting
To assess market conditions and member compliance with output cuts, the group will hold an online meeting of its Joint Ministerial Monitoring Committee on April 3. Earlier this month, OPEC+ members agreed to extend their output cuts until the end of June. Russia has already instructed companies to reduce their output to meet the agreed target, and Iraq’s oil ministry has announced a decrease in exports to compensate for previous overproduction.
The recent announcements of production curtailments have raised concerns about the ability of OPEC and OPEC+ to adhere to the agreed cuts. In February, OPEC exceeded its production targets by 190,000 barrels per day, with Iraq being one of the countries that exceeded its quota limits. Analysts at ANZ noted that traders are closely monitoring OPEC members, particularly Iraq, for any signs of a shift in their production quotas stance.
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