Oil prices ease after Russia says it may gradually raise output

CNBC

  • Oil prices eased on Friday as Russia hinted it may gradually increase output.
  • OPEC and a group of non-OPEC producers led by Russia started withholding output in 2017 to tighten the market.
  • Russia has been floating a potential end to the production cuts.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil prices eased on Friday as Russia hinted it may gradually increase output after withholding supplies since 2017 together with producer cartel OPEC.

Brent crude futures were at $78.78 per barrel at 0024 GMT, down 1 cent from their last close, but more than 2 percent below the $80.50 November 2014 high they reached on May 17. Brent broke through $80 for the first time in a few years earlier in May.

U.S. West Texas Intermediate (WTI) crude futures were at $70.69 a barrel, down 2 cents from their last settlement.

“Oil prices are now starting to drift a little,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader, adding that this was due to OPEC’s and Russia’s “moves toward an increase in production at the June meeting”.

Here's the path to Brent oil at $100 a barrel this summer, says RBC's Helima Croft

Here’s the path to Brent oil at $100 a barrel this summer, says RBC’s Helima Croft  

The Middle East dominated Organization of the Petroleum Exporting Countries (OPEC) as well as a group of non-OPEC producers led by Russia started withholding output in 2017 to tighten the market and prop up prices.

But Russia, in particular, has been floating a potential end to the production cuts, with energy minister Alexander Novak saying on Thursday that restrictions on oil production could be eased “softly” if OPEC and non-OPEC countries see the oil market balancing in June.

“The Russians have always struck me as production cut tourists keen to get off the boat and crank up production as soon as inventories were stabilized and prices once again elevated … That possibility is top of the mind for traders and as a result oil prices are slipping,” McKenna said.

‘Biggest’ change in oil market history: Crude prices set to soar ahead of shipping revolution

CNBC

  • New rules coming into force in approximately 18 months’ time are seen as a source of great concern for some of the world’s biggest oil producers.
  • On January 1, 2020, the International Maritime Organization (IMO) will enforce new emissions standards designed to significantly curb pollution produced by the world’s ships.
  • Global benchmark Brent crude will climb to $90 a barrel by 2020 as new international shipping laws overhaul the types of fuels produced by refiners, Morgan Stanley analysts predicted in a research note.

Risk oil market could lose Iran’s exports keeps prices ticking higher: Pro  

Instead of OPECIran or even Venezuela, the most prominent driver of oil prices over the next two years is likely to come in the shape of a shipping revolution, analysts have warned.

New rules coming into force in approximately 18 months’ time are seen as a source of great concern for some of the world’s biggest oil producers. That’s because global energy and shipping industries are thought to be ill-prepared for the looming sea change.

On January 1, 2020, the International Maritime Organization (IMO) will enforce new emissions standards designed to significantly curb pollution produced by the world’s ships.

“It’s the biggest (change) in the history of the market,” Amrita Sen, chief oil analyst at Energy Aspects, told CNBC’s “Squawk Box Europe” this week.

Why are the changes being enforced?

Amid a broader push towards cleaner energy markets, the IMO’s changes will specifically look to cut back sulfur emissions. The pollutant is a component of acid rain, which harms vegetation and wildlife, and is blamed for some respiratory illnesses.

The forthcoming measures are widely expected to create an oversupply of high-sulfur fuel oil while sparking demand for IMO-compliant products — thus ratcheting up the pressure on the refining industry to produce substantially more of the latter fuels.

“That is very important because Middle Eastern producers lose out heavily from that because their crude tends to be very high sulfur,” Sen said.

A support vessel flying an Iranian national flag sails alongside the oil tanker 'Devon' as it prepares to transport crude oil to export markets in Bandar Abbas, Iran, on Friday, March 23, 2018.

Ali Mohammadi/Bloomberg via Getty Images
A support vessel flying an Iranian national flag sails alongside the oil tanker ‘Devon’ as it prepares to transport crude oil to export markets in Bandar Abbas, Iran, on Friday, March 23, 2018.

In contrast to some of the world’s leading oil producers in the Middle East, including OPEC kingpin Saudi Arabia, the U.S. is expected to be better-placed to cope with the IMO’s measures due to their reputation for producing lighter crude.

What does this mean for oil prices?

Global benchmark Brent crude will climb to $90 a barrel by 2020 as new international shipping laws overhaul the types of fuels produced by refiners, Morgan Stanley analysts predicted in a research note published last week.

“You do not want to give Jeff Bezos a seven-year head start.”
Hear what else Buffett has to say

“We expect the crude oil market to remain under-supplied and inventories to continue to draw,” the bank said, before adding: “This will likely underpin prices.”

To be sure, the IMO’s rules will ban ships using fuel with a sulfur content higher than 0.5 percent, compared to 3.5 percent at present, unless ships are fitted with equipment to clean up its sulfur emissions.

Right now, few ships have invested in equipment to scrub pollutants from engines that burn high-sulfur fuel, so many external observers believe the majority of shipping companies are investing in capacity to make low-sulfur fuel.

Oil dips after rally, OPEC may ease supply curbs

CNBC

  • Oil prices edged lower on Wednesday.
  • Markets took a breather on expectations OPEC may raise supplies as early as June.
  • Concerns about a potential drop in Iranian oil exports following Washington’s exit from the Iran nuclear deal remained.

Oil jack pumps in the Kern River oil field in Bakersfield, California.

Jonathan Alcorn | Reuters
Oil jack pumps in the Kern River oil field in Bakersfield, California.

Oil prices edged lower on Wednesday as the market took a breather on expectations OPEC may raise supplies as early as June, although geopolitical risks kept a floor under the market.

Brent futures dipped 4 cents to $79.53 a barrel by 0006 GMT, after climbing 35 cents on Tuesday. Last week, the global benchmark hit $80.50 a barrel, the highest since November 2014.

U.S. West Texas Intermediate (WTI) crude futures eased 2 cents to $72.18 a barrel, having climbed on Tuesday to $72.83 a barrel, the highest since November 2014.

“Geopolitical risks … kept investors on their toes. U.S. Secretary of State Pompeo demanded that Iran halt all uranium enrichment and give nuclear inspectors access to the entire country,” ANZ said in a note.

“However, investors are mindful of upcoming talks between Russia and Saudi Arabia about whether they should look at a controlled relaxation of over-compliance with their output cut agreement.”

OPEC may decide to raise oil output as soon as June due to worries over Iranian and Venezuelan supply and after Washington raised concerns the oil rally was going too far, OPEC and oil industry sources familiar with the discussions told Reuters.

The OPEC-led supply curbs have largely cleared an inventory surplus in industrialized countries based on the deal’s original goals, and stocks continue to decline.

Rising supply in the United States, where shale production is forecast to hit a record high in June, has limited the upward move in prices.

$80 dollar oil not out of the question, says pro. Here's why

$80 dollar oil not out of the question, says pro. Here’s why  

Concerns about a potential drop in Iranian oil exports following Washington’s exit from a nuclear arms control deal with Tehran have driven prices to multi-year highs.

On Monday, the United States demanded Iran make sweeping changes – from dropping its nuclear program to pulling out of the Syrian civil war – or face severe economic sanctions.

Iran dismissed Washington’s ultimatum and one senior Iranian official said it showed the United States is seeking “regime change” in Iran.

U.S. crude and distillate stockpiles fell last week, while gasoline inventories increased unexpectedly, data from industry group the American Petroleum Institute showed on Tuesday.

Oil prices have been given a boost, but they could struggle to head higher

CNBC

  • Oil will be in a $55 to $75 per barrel range on a 12-month basis, said Manpreet Gill, head of FICC investment strategy at Standard Chartered Private Bank.
  • There’s been plenty of price-supportive news in the short term, but oil could struggle to head higher still, Gill said.
  • Concerns over Venezuela and impending U.S. sanctions on Iran have supported oil prices in recent weeks.

The 'basic demand-supply fundamentals' imply oil prices will dip

‘Basic demand-supply fundamentals’ imply oil prices will dip: Strategist  

Oil prices have climbed in recent weeks, but whether that rise will continue for longer could be in doubt.

“On a 12-month basis, which is the horizon we take, we think we’re more likely to be in sort of a $55 to $75 range, which is a little bit lower than where we are today,” Manpreet Gill, head of fixed income, currencies and commodities investment strategy at Standard Chartered Private Bank, told CNBC’s Sri Jegarajah.

“The reason for that is simply, when we look out beyond the next few months and really take that one-year view, we’re looking at the basic demand-supply fundamental. That’s what causes our bullish view all the way coming in over the past year or two. That’s what’s causing us to say, how much can this go if we start really looking beyond the next three months?” Gill said.

Prices have risen recently amid concerns over the impact of potential U.S. sanctions on Venezuela’s oil exports following a disputed election which saw Venezuelan President Nicolas Maduro re-elected. Also, an executive order that prohibited U.S. citizens from participating in the sale of Venezuelan receivables linked to oil was signed by U.S. President Donald Trump on Monday, Reuters reported.

U.S. West Texas Intermediate crude futures were up 20 cents, or 0.28 percent, at $72.44 per barrel. International benchmark Brent crudefutures were 13 cents, or 0.16 percent, higher at $79.35 during Asia afternoon trade on Tuesday.

Brent had crossed the $80 mark last week for the first time since November 2014.

View of an oil refinery in the Maracaibo lake, on May 2, 2018 in Maracaibo, Venezuela.

Federico Parra | AFP | Getty Images
View of an oil refinery in the Maracaibo lake, on May 2, 2018 in Maracaibo, Venezuela.

“The question for us is how much more can this price move, in the sense of how much more bad news can we get?” Gill said.

That was given how the demand-supply balance will begin to turn less supportive for oil in 2019, Gill said. “There [will be] much more supply relative to demand, so you’re not getting the same level of fundamental support,” he added.

In recent weeks, markets have been focused on the effect of impending U.S. sanctions on Iranian oil exports, which the Trump administration has repeatedly threatened to do. Trump had announced that he was pulling U.S. out of the Iran nuclear deal earlier this month.

More broadly, prices have firmed amid ongoing oil production cuts led by the Organization of Petroleum Exporting Countries.

US likely to slap tough oil sanctions on Venezuela — and that’s a ‘game changer’ for Maduro

CNBC

  • Venezuelan President Nicolas Maduro won re-election to another six-year term on Sunday, despite widespread anger over the South American country’s crushing economic and social crises.
  • “The next step is sanctions against the oil sector,” Diego Moya-Ocampos, principal political analyst for Latin America at IHS Markit, told CNBC’s “Squawk Box Europe” on Monday.
  • Maduro’s leftist administration is almost entirely dependent on crude sales in order to try to decelerate its spiraling crises.

Nicolas Maduro re-elected president for fresh 6-year term  

The U.S. is almost certainly preparing to impose targeted crude sanctions against Venezuela, analysts told CNBC on Monday, in a move likely to constitute a “devastating” blow for the oil-dependent state.

Venezuelan President Nicolas Maduro won re-election to another six-year term on Sunday, despite widespread anger over the South American country’s crushing economic and social crises. The vote was marred by low voter turnout, allegations of vote-rigging and an opposition boycott.

“The next step is sanctions against the oil sector,” Diego Moya-Ocampos, principal political analyst for Latin America at IHS Markit, told CNBC’s “Squawk Box Europe” on Monday.

“This is crucial because (Venezuela’s) oil sector represents 25 percent of GDP (gross domestic product), 50 percent of fiscal revenues and 97 percent of revenue from foreign exchange… So, obviously, sanctions on the oil sector in Venezuela will be a game changer.”

Oil sanctions would be ‘devastating’

Amid widespread food shortages, the collapse of the country’s traditional currency and relentless hyperinflation, Maduro was widely expected to emerge victorious on Sunday. The socialist leader is now set to serve as Venezuela’s premier until at least 2024.

Officials from the United Nations, the U.S., the European Union and Venezuela’s regional neighbors have all denounced the presidential election as a sham.

Venezuelan President and presidential candidate Nicolas Maduro attends the closing rally of his campaign ahead of the weekend's presidential election, in Caracas, on May 17, 2018.

JUAN BARRETO | AFP | Getty Images
Venezuelan President and presidential candidate Nicolas Maduro attends the closing rally of his campaign ahead of the weekend’s presidential election, in Caracas, on May 17, 2018.

Meanwhile, in the aftermath of Maduro’s disputed success, all eyes have turned to see whether President Donald Trump‘s administration will impose sanctions on the country’s all-important oil sector — as it has repeatedly threatened to do.

Alongside the EU, surrounding Latin American countries have also warned Caracas they would be prepared to take additional measures against Maduro’s government if it went ahead with the election.

“Oil sanctions would be devastating to the Venezuelan economy and to the regime’s internal stability as they would very strongly impact the revenues that flow through the patronage regime,” Fernando Freijedo, Latin America analyst at the Economist Intelligence Unit, told CNBC via email.

‘Epic story of economic mismanagement’

Maduro’s leftist administration is almost entirely dependent on crude sales in order to try to decelerate its spiraling crises.

Yet, the country’s production collapse has seen its crude output drop to around 1.4 million barrels a day (bpd) in recent months — a spectacular fall of nearly 40 percent since 2015.

“The sharp decline in oil prices has nothing to do with the dire state of the economy… (Instead) it is an epic story of economic mismanagement and indeed widespread corruption,” IHS Markit’s Moya-Ocampos said.

Protesters seen marching toward the OEA while holding the Venezuelan flag at the demonstration.

Roman Camacho | SOPA Images | LightRocket via Getty Images
Protesters seen marching toward the OEA while holding the Venezuelan flag at the demonstration.

The price of oil collapsed from near $120 a barrel in June 2014 due to weak demand, a strong dollar and booming U.S. shale production. Brent crude futures have since rebounded to multi-year highs of nearly $80 a barrel, amid a tightening energy market and ongoing OPEC-led production cuts.