Oil Pares Losses as Industry Report Shows Falling U.S. Supplies

© Bloomberg. Emissions rise from the Royal Dutch Shell Plc Norco Refinery in Norco, Louisiana, U.S., on Friday, June 12, 2020. Oil eclipsed $40 a barrel in New York on Friday, extending a slow but relentless rise that’s been fueled by a pick-up in demand and could signal a reawakening for U.S. shale production. Photographer: Luke Sharrett/Bloomberg

(Bloomberg) -- Oil pared losses after an industry report showed a decline in U.S. crude supplies.

The industry-funded American Petroleum Institute was said to report domestic crude inventories fell 7.2 million barrels last week, according to people familiar with the data. That would be a fifth straight weekly decline if the U.S. government confirms the data on Wednesday.

“That’s a pretty big number and that’s where we’re seeing the support,” said Gary Cunningham, director of market research at Tradition Energy.

Earlier, futures closed lower amid concerns that OPEC+ will boost output. The producer coalition will meet next week and Russia -- which jointly leads the alliance with Saudi Arabia -- was reported to consider proposing the group increase supply in August.

Global progress in Covid-19 vaccination campaigns has underpinned a robust consumption recovery in the U.S., China and Europe, boosting crude prices. The market will remain tight through the summer, according to Goldman Sachs Group Inc (NYSE:GS).’s Jeff Currie. Market gauges are further corroborating that view, with one timespread for West Texas Intermediate expanding to the widest backwardation in seven years on Monday.

OPEC and its partners have maintained discipline toward restoring shuttered supplies during the pandemic. The roaring comeback in demand is now testing the patience of group members, who will gather on July 1 to weigh another hike.

“This everyone-gets-along story is going to end as people battle for market share,” said Edward Moya, senior market analyst at Oanda Corp.

The global supply deficit and further spikes in oil prices could loosen the lid that the U.S. shale industry has kept on their production and Saudi Arabia will want to avoid giving producers a reason to bring wells online, according to Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “They don’t want to see shale come back quickly.”

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