Oil lower as suppliers seek to hold promises on output cuts

TOKYO: Oil prices slipped on Tuesday, though they mostly held onto overnight gains after OPEC+ said the producer grouping is almost fully complying with output cuts to support prices amid a drop in demand for fuels due to the coronavirus pandemic.

Brent crude LCOc1 was down 22 cents, or 0.5%, at $45.15 a barrel by 0322 GMT, after gaining 1.3% on Monday.

U.S. crude was down 23 cents, or 0.5%, at $42.66 a barrel, having risen 2.1% in the previous session.

Compliance with OPEC+ oil output cuts was seen at around 97% in July, two OPEC+ sources told Reuters. The oil producers curbed output by record levels to reduce worldwide inventories, as demand collapsed from the pandemic.

The Organization of the Petroleum Exporting Countries (OPEC) and allies known as OPEC+ in August reduced their agreed cuts to 7.7 million barrels per day (bpd) from 9.7 million bpd previously as prices started picking up in recent months.

“We believe that the most significant risks to the physical (oil) market have now passed,” Australian miner and oil producer BHP said on Tuesday when it announced earnings.

“Prices may well build upon their recent recovery, if mobility continues to improve globally,” BHP said, although it warned that “the pace of gains though could be modest given potential headwinds from supply returning.”

Japan, the world’s third-biggest economy is likely to contract more than previously expected due to the pandemic, analysts said.

The U.S. Energy Information Administration last week reduced its global oil demand forecast, suggesting a smaller than previously expected reduction in global inventories.