Oil prices ended their recent rally as US inventories continued to build, while Saudi Arabia and Russia pledged to continue their co-operation through the Opec+ alliance of producers.
West Texas Intermediate, the key US benchmark, was down 0.76 per cent trading at $32.56 per barrel, while Brent, the international benchmark was up 0.03 per cent at $34.75 per barrel at 4.38pm UAE time.
Oil started the week on a high note, with the spread between the benchmarks narrowing as Opec+ continued to cut back on production and countries eased lockdown measures.
The producers are currently withholding 9.7 million bpd from the market, and prices weakened after signals from Moscow that it wanted to ease the curbs from July.
The parties are set to meet virtually on June 9 and 10 to review the production cuts, which are set to be reduced gradually through tapering until 2022.
Russian President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed bin Salman pledged to work in close co-ordination ahead of the meeting, which would be seen as a welcome development for oil markets.
Despite oil markets trending lower, Julius Baer expects prices to recover to above $40 per barrel by the summer.
"Oil’s rally is seemingly taking a breather around the level of $35 per barrel. The market has regained confidence whilst fears about an overflowing oil market have taken a back seat,” said Norbert Rücker, head of economics and next generation research at the Swiss bank.
"Sentiment tends to swing from bearish to bullish and vice versa within weeks, pushing prices in either direction. This mood driver looks partially exhausted and potentially adds less tailwinds to oil prices going forward,” he added.
The industry-funded American Petroleum Institute forecast an inventory build of 8.731 million barrels for the week ending May 22, which was higher than analysts forecasts of an inventory draw of 2.5m barrels. API anticipated a draw of 4.8m barrels last week.
"Oil traders will be watching the weekly US oil inventories data today. A third consecutive weekly decline in US inventories should throw a floor under the WTI’s downside correction within the $32/30 area,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
"But it is worth noting that this week’s data, even favourable, could have a softer positive impact on oil prices compared to the previous two weeks, when the unexpected inventory declines caught investors by surprise,” she added.
Ratings agency Moody's on Thursday lowered its medium term forecast for oil prices by $5 per barrel to a range of $45-$65 per barrel, arguing that oil demand will increase at a slower pace than overall GDP growth, and that the digitisation of certain services that has taken place as a result of the coronavirus could bring "permanent changes" in the way some services are delivered, reducing business travel and commuting.