Oil drops 3% as Saudi Arabia says it won't extend voluntary cuts

An offshore oil platform is seen with a tanker in the distance on April 20, 2020 in Huntington Beach, California.
Michael Heiman | Getty Images

Oil fell more than 3% on Monday after Saudi Arabia said an extension of output cuts by OPEC+ nations would not include additional voluntary reductions by a trio of Gulf producers.

After rising for seven consecutive session, Brent oil futures fell $1.30, or 3.1%, to $41.00 a barrel. West Texas Intermediate crude, meanwhile, fell $1.36, or 3.44%, to settle at $38.19 per barrel.

Both benchmarks rose to their highest since March earlier in the session with WTI topping $40 a barrel.

The Organization of the Petroleum Exporting Countries, Russia and other producers - a group known as OPEC+ - agreed in April to cut supply by 9.7 million barrels per day (bpd) in May and June in an effort to prop up prices as coronavirus travel restrictions caused demand to collapse.

The OPEC+ producers agreed on Saturday to sustain those cuts, equal to about 10% of global supply, through July.

After the extension was agreed, top exporter Saudi Arabia increased its monthly crude prices for July.

However, Saudi Energy Minister Prince Abdulaziz bin Salman told a news conference on Monday that the kingdom and Gulf allies Kuwait and the United Arab Emirates would not cut by an extra 1.18 million bpd in July as they are doing this month.

Those cuts were in addition to the 9.7 million bpd OPEC+ plan.

"It would be too good to be true to have a total of nearly 11 million bpd in voluntary cuts extended for a month at times when we see supply deficits," said Bjornar Tonhaugen at Rystad Energy.

Low prices have prompted Chinese buyers to boost imports, with purchases by the world's largest crude importer hitting a record high of 11.3 million bpd in May.

Analysts said higher oil prices could discourage buying and undercut the fragile recovery demand while prompting U.S. shale drillers to return to reopen wells.