Crude retreats as bull rally pauses ahead of OPEC+ meeting

Crude oil prices settled lower June 28 but remained near multiyear highs as the market looked to the upcoming OPEC+ group meeting for the next direction.

NYMEX August WTI was down $1.14 at $72.91/b, and ICE August Brent moved $1.50 lower to $74.68/b.

All eyes were on the OPEC+ July 1 meeting, during which the producer group is expected to provide guidance into its production plan for August and possibly beyond. OPEC+ was currently holding crude production at 6.2 million b/d below October 2018 levels, and intends to taper this output cut to 5.76 million b/d in July.

"With the OPEC+ production increases running their course in July, this week's meeting is garnering plenty of attention as to what the next steps will be for the cartel," TD Securities analysts said in a June 28 note. "We expect the cartel will increase production once again but will ultimately maintain a cautious approach that may only satisfy a portion of the expected deficits this summer."

On June 25, front-month WTI had settled at the highest since Oct. 9, 2018, while ICE Brent was the strongest since Oct. 29, 2018.

NYMEX July RBOB settled 4.73 cents lower at $2.2166/gal, and July ULSD finished down 3.11 cents at $2.1182/gal.

The OPEC+ coalition has met with several calls to raise production August onward to ensure adequate oil supply in the market, with the Indian oil minister raising concerns over inflationary pressure from rising oil prices in a virtual meeting with OPEC Secretary General Mohammed Barkindo on June 24. Others have made similar calls, saying that countries emerging from the shadow of lockdown restrictions need affordable energy prices to support their economic recovery.

Yet analysts expected the coalition to remain cautious when it comes to raising production, as a myriad of developments could still derail the recovery in the oil market.

"We expect the OPEC+ alliance will try to balance the market's need for more supply against the fragile nature of the recovery in demand at next week's meeting," ANZ analysts said in a June 28 note.

The group's supply discipline, coupled with rapid demand recovery in areas where the pandemic has been minimized, has drained stockpiles built up during the pandemic, and the International Energy Agency has urged OPEC+ to ease output curbs to keep markets balanced.

Against this backdrop, market analysts were expecting OPEC+ to announce a rise in output of around 500,000b/d, after agreeing to a 440,000 b/d increase in July.

In the US, refinery crude appetite has outpaced production growth and drained inventories. Total US commercial crude oil stocks are expected to have declined 4.7 million barrels to around 454.4 million barrels in the week ended June 18, analysts surveyed by S&P Global Platts said June 28. The draw would put inventories at the lowest since March 2020 and leave them 6.3% behind the five-year average of US Energy Information Administration data, opening the widest average deficit since August 2008.

The draw comes as analysts expected refinery utilization to have pushed to around 92.9% of capacity in the week ended June 25, up 0.7 percentage point from the week prior and the highest since early January 2020.