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Expected increased output overshadows OPEC+ weekend pact

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Oil rally may brighten Nigeria’s outlook

 BusinessMetricsNG with wire report

weakens Crude-oil futures

Crude-oil futures turned lower Monday as investors focused on the prospect of increased output from some countries.

This is coming even after Organisation of Petroleum Exporting Countries (OPEC) and allied nations agreed Saturday to extend a production cut of nearly 10 million barrels of oil a day through the end of July.

Overall compliance to the production-cut deal, which was a sticking point headed into the gathering, has been a consistent worry, experts said.

A fear of a ramp-up in output from North American shale-oil producers as prices of crude climb, a refusal by Mexico to adhere to production cuts and a report that Libya has restarted production at its largest oil field, has undercut optimism about an extension of the historic output-cut agreement, The Wall Street Journal reported.

The combination of Mexico and Libya could contribute an additional 400,000 barrels a day of crude.

Meanwhile, Reuters reported that Gulf OPEC producers, which pledged voluntary production cuts of 1.18 million barrels per day that began in June, have no plans to extend those reductions beyond this month.

Those were in addition to the agreement between the Organization of the Petroleum Exporting Countries and their allies, collectively known as OPEC+.

The extra curtailments from Saudi Arabia, the United Arab Emirates and Kuwait were “not insignificant,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy, in emailed commentary.

“It would be too good to be true to have a total of nearly 11 million [barrels per day] in voluntary cuts extended for a month at times when we see supply deficits. Keeping those bonus cuts would just not be justified for the three Gulf producers.”

West Texas Intermediate crude for July delivery CL.1, -3.33 per cent CLN20, -3.33 per cent, the U.S. benchmark, was off $1.31, or 3.3 per cent, at $38.24 a barrel on the New York Mercantile Exchange, after trading as high as $40.44 intraday Monday.

On Friday, the front-month WTI contract finished with a weekly gain of 11.4 per cent, according to Dow Jones Market Data.

Global benchmark Brent oil for August delivery BRNQ20, -2.90 per cent, meanwhile, retreated $1.26, or 3 per cent, at $41.04 a barrel on ICE Futures Europe.

Prices for the front-month contract had touched an intraday high of $43.41, after posting a weekly gain of 11.8 per cent on Friday.

Both grades of oil finished Friday at their highest levels since March 6 and booked a sixth consecutive weekly gain in anticipation of the pact from the major oil-producing giants.

Meanwhile, OPEC+ concluded a videoconference meeting on Saturday, adopting measures aimed at cutting the excess production depressing prices as global aviation remains largely grounded due to the coronavirus pandemic. The curbed output represents some 10 per cent of the world’s overall supply.

Markets had hoped that the alliance of major crude producers could strike an accord to extend a cut of output, which would have begun to taper in July, for at least another month as the crude industry contends with a pandemic that has sent much of the world spiraling into recession—an economic backdrop that is bearish for oil uptake.

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