By Geoffrey Smith
Investing.com -- Crude oil prices drifted lower on Monday despite a broadly positive tone to other risk assets such as equities and base metals, amid signs that the 'OPEC+' group of oil exporters is set to increase supply to the world market after a couple of months of extraordinary restraint.
By 9:15 AM ET (1315 GMT), U.S. crude futures were down 0.5% at $40.33 a barrel. However, that was well off an earlier intraday low of $39.66. The international benchmark Brent was down 0.5% at $43.02 a barrel.
Prices had weakened overnight after newswire reports citing officials close to the bloc as saying that the likely outcome of a technical monitoring meeting later this week will be for the group to keep to its pre-announced plan of restoring 2 million barrels a day of oil supply from the start of August. That's a little over 20% of what the group pulled from world markets in a desperate effort to support prices as demand collapsed in the wake of the Covid-19 pandemic.
From Aug. 1, it's intended that the amount of OPEC+ supply cuts should taper from 9.7 million barrels a day to 7.7 million b/d.
The bounce in prices came after newswires reported unnamed Saudi officials as saying that the increase in production wouldn't translate 1-for-1 into an increase in world exports, noting that the Desert Kingdom first intended to restore domestic consumption - meaning that it won't be dumping all of its extra output into the seaborne market.
OPEC and its allies are treading a fine line. The planned increase will come in the middle of what could be the most brutal earnings season in living memory, and what is certain to be a robust test of optimists' faith in a rapid recovery in both the economy and its demand for fuel. GasBuddy analyst Patrick de Haan tweeted earlier that the company's preliminary data suggested U.S. gasoline demand fell over 16% on the week through Friday - although a large part of that decline was due to Americans filling up ahead of the long holiday weekend a week earlier.
However, the bloc can be reasonably confidence that the U.S. is hardly racing to produce more oil right now: The use of drilling rigs is at historic lows, the capital market has essentially closed to all but the strongest producers and a court order is effectively shutting in hundreds of thousands of barrels a day of output in the Bakken shale formation. Matt Gallagher, CEO of shale producer Parsley Energy (NYSE:PE), told the Financial Times in an interview on Monday that he didn't think U.S. output will ever return to its pre-pandemic highs.