Oil dropped below $38 a barrel in New York as risky assets declined and Saudi Arabia said it would cease extra voluntary production cuts by the end of this month. Futures reversed an earlier gain to trade as much as 2.3% lower. The slide mirrored a retreat in equity markets, while Saudi Arabia said Monday that additional supply cuts, which amounted to about 1.2 million barrels a day and included contributions from allies in the Persian Gulf, wouldn’t continue beyond June.
Oil has rebounded since dropping below zero in April as output cuts reduced a global glut and demand picked up following the easing of lockdown restrictions in some countries. However, with a surplus of fuels, most notably diesel, looming over oil’s recovery, Goldman Sachs Group Inc. has turned bearish in the short term due to poor returns from refining.
“Global assets have really made a strong rebound from oil to equities and now it’s going to be difficult to carry the same momentum,” said Olivier Jakob, managing director of Petromatrix GmbH. “Demand is coming back, but the stocks are still very high.” In Libya, a group of armed militants entered the Sharara field and asked the field’s director to halt production, hours after output had resumed, according to a statement from National Oil Co. It was said to shut soon after its restart.
Meanwhile, Iraq has asked some Asian refiners to consider forgoing prompt shipments of its Basrah crude, raising speculation that OPEC’s second-biggest producer is trying to comply with pledged output cuts. The country and some others were recently pulled up by Saudi Arabia and Russia for pumping above their quotas.