Oil prices drop on expectations OPEC could boost output

27 May, 2018, 04:40 | Author: Franklin Nunez
  • MID-DAY: Oil continues to slump on reports of higher production; North Korea US tensions weight Wall Street

The premium of Brent crude over US West Texas Intermediate futures neared $8 a barrel, close to its widest in three years.

Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, said prices were getting some support from talk that Sinopec, Asia's largest refiner, would increase United States crude oil imports to a record high.

The Organization of Petroleum Exporting Countries (OPEC) may decide at its meeting in June to increase oil output to make up for reduced supply from Iran and Venezuela and in response to concerns from Washington over a rally in oil prices, OPEC and oil industry sources told Reuters.

Oil action Friday demonstrates that the "OPEC June meeting deserves plenty of scrutiny and will see lots of jockeying for position among hawks and doves", said Tom Kloza, global head of energy analysis at Oil Price Information Service.

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Pressure has been on the rise since the International Energy Agency published its monthly report acknowledging that the oil market was now balanced and that commercial glut in major industrial countries fell by about 1 million barrels.

Despite oil's losses Friday, analysts at Société Générale raised their forecasts for oil prices.

"I think the output reduction will not be as significant as many expect".

As expected, the Russian energy minister, Alexander Novak met with several ministers in recent days, including the OPEC President and UAE energy minister, Suhail Al Mazrouei and the Saudi Arabian minister, Khalid Al Falih to discuss the situation.

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As per the data, Friday ia showing the biggest weekly rise in the number of active USA oil rigs, which suggests a possible uptick in production, also contributed in the decline in prices.

The United States is actively considering oil sanctions on Venezuela, where output has dropped by a third in two years to its lowest in decades. That was a surprise increase compared with the 2 million-barrel decline predicted in a Bloomberg survey. Analysts were looking for a 1.388-million-barrel draw. The US yesterday hardened its approach to Iran.

Oil benchmarks fell on Wednesday after an unexpected build in USA crude and gasoline inventories despite strong demand, and as traders weighed the possibility of an increase in OPEC crude output to cover any shortfalls in supply from Iran and Venezuela.

"The talks now are to bring compliance down to the 100 percent level, more for OPEC rather than for non-OPEC", one source said. "The more important thing is how that was followed up today with Opec and Russian Federation regarding the possibility of removing some of those supply constraints".

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Concern about a potential drop in Iranian oil exports following Washington's exit from a nuclear deal with Tehran and the threat of USA sanctions is also supporting prices.

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