Oil futures held their ground above $60 a barrel on Monday, but still marked their first fall in three sessions following an estimate showing strong May output from the Organization of the Petroleum Exporting Countries, ahead of the cartel’s meeting later this week.
OPEC members aren’t expected to make any changes to their production ceiling. Adding to oil’s price pressures Monday was a smaller-than -expected gain in China’s May factory activity, which dulled the outlook for energy demand. Strength in the dollar also weighed on the commodity.
On the New York Mercantile Exchange, July crude settled at $60.20 a barrel, down 10 cents, or 0.2%, after falling to as low as $59.33 a barrel. July Brent crude on London’s ICE Futures exchange declined by 68 cents, or 1%, to $64.88 a barrel. In May, OPEC production was at 31.2 million barrels a day — a 2½ year high, according to a Reuters survey. And “there are no expectations for an OPEC cut in production,” said Richard Hastings, macro strategist at Global Hunter Securities. OPEC has said it likes to keep its output at 30 million barrels a day but the cartel doesn’t consider that production level a mandate. “Evidence now points to bigger growth in supplies outside of the U.S.,” said Hastings.
The rally in crude oil that ended last week “appears to have run out of gas for now,” said Colin Cieszynski, chief market strategist at CMC Markets. “Oil could remain active through the week heading into Friday’s OPEC meeting where the cartel is expected to keep its production levels the same and its market-share war going.”
Nymex oil prices had gained 1.1% during the month of May following 4 weeks of declines in U.S. crude supplies. They climbed 4.5% on Friday. Baker Hughes on Friday reported a 25th straight weekly decline in the number of U.S. rigs actively drilling for oil. The oil market has been hoping that the drops in rig count will eventually lead to a significant decline in U.S. output — and help drawdown the nation’s glut of supplies.
Meanwhile, China’s official purchasing managers index showed modest gains in May, damping the energy-demand outlook for one of the world’s largest consumers. Data released Friday showed a contraction in U.S. GDP. On Monday, however, the U.S. Institute for Supply Management’s manufacturing indexshowed a slight rise in May. Against that backdrop, the ICE U.S. dollar index climbed 0.5%. A stronger greenback tends to weigh on dollar-denominated commodity prices.