Crude oil futures plummet amid reports of extra Saudi supply ahead of OPEC meeting

Crude oil futures were sharply lower in mid-morning Asian trade June 2 amid reports that some OPEC producers were prepared to raise output beyond their pledged quotas as the wider OPEC+ group prepares to convene later in the day.

At 11:04 am Singapore time (0304 GMT), the ICE August Brent futures contract was down $2.26/b (1.94%) from the previous close at $114.03/b, while the NYMEX July light sweet crude contract fell $2.45/b (2.13%) at $112.81/b.

Media reports indicated that Saudi Arabia has told Western leaders that the country is prepared to raise output beyond its pledged quota to make up for the shortfall in Russian supply.

This follows on from reports earlier in the week that OPEC delegates were discussing exempting Russia from OPEC+ production quotas, which could potentially pave the way for other members to further raise output.

"It seems the ground is being laid for Saudi Arabia and the United Arab Emirates to ramp up production to take the heat out of oil prices," OANDA Senior Market Analyst Jeffrey Halley told S&P Global Commodity Insights.

"There could be some back room deals being cut between Saudi/UAE and the US," said Halley, citing extra political impetus from US President Joe Biden due to soaring gasoline prices ahead of the mid-term elections and high oil prices aiding Russia's finances.

"This afternoon's OPEC+ meeting is shaping up to be a pivotal event of the week, maybe even the year," he added.

The front-month ICE Brent crude marker had plunged by as much as 3% in early-morning trade in response to the reports, though as it has recouped some of its losses since then.

While many OPEC producers face difficulties in raising output due to domestic turmoil or lack of investment, analysts noted that several members such as Saudi Arabia or the United Arab Emirates nonetheless still have untapped spare capacity.

Worsening US oultook

Oil prices also remained at the mercy of sentiments in the broader financial markets, which have been buffeted in recent days by fresh concerns about a global recession amid a worsening outlook from the US Federal Reserve and bearish comments from Wall Street executives.

The Fed's latest Beige Book, which reviews economic conditions in the US, showed June 1 that growth was slowing in some areas of the economy.

"Statements [from the book] indicate 'slight to modest growth' for economic conditions in most districts, which seems to be a downward revision from the 'moderate' activity back in April," said IG Market Strategist Yeap Jun Rong in a June 2 note.

"This seems to reinforce warnings from JPMorgan CEO Jamie Dimon and Wells Fargo CEO Charlie Scharf overnight, which suggests economic challenges ahead with words of an economic 'hurricane' and 'hard to avoid some sort of recession'," he added.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia June 2 from the previous close.

The August Dubai swap was pegged at $102.89/b at 10 am Singapore time (0200 GMT), down $2.34/b (2.22%) from the June 1 Asian market close.

The July-August Dubai swap intermonth spread was pegged at $2.59/b at 10 am, down 30 cents/b over the same period, and the August-September intermonth spread was pegged at $1.96/b, down 33 cents/b.

The August Brent/Dubai EFS was pegged at $10.80/b, down $1.09/b.