Brent drops by 2 percent as traders expect output rise after OPEC deal

CNBC

  • Global benchmark Brent fell by more than 2 percent in early trade on Monday.
  • That followed an expected output increase that was agreed at OPEC’s headquarters in Vienna on Friday.
  • Brent futures were down 2.2 percent at $73.9 at 0035 GMT, from their last close.

Brent crude oil prices fell by more than 2 percent early on Monday as traders factored in an expected output increase that was agreed at the headquarters of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna on Friday.

Brent crude futures , the international benchmark for oil prices, were at $73.90 per barrel at 0035 GMT, down 2.2 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $68.36 a barrel, down 0.3 percent, supported by a slight drop in U.S. drilling activity.

Prices initially jumped after the deal was announced as it was not seen boosting supply by as much as some had expected.

OPEC and non-OPEC partners including Russia have since 2017 cut output by 1.8 million barrels per day (bpd) to tighten the market and prop up prices.

Largely because of unplanned disruptions in places like Venezuela and Angola, the group’s output has been below the targeted cuts, which it now says will be reversed by supply rises especially from OPEC leader Saudi Arabia.

Britain’s Barclays bank said OPEC’s and Russia’s commitments would take “the market from a -0.2 million bpd deficit in H2 2018 to a 0.2 million bpd surplus”.

Energy consultancy Wood Mackenzie said the agreement “represents a compromise between responding to consumer pressure and the need for oil-producing countries to maintain oil prices and prevent harming their economies”.

In the United States, U.S. energy companies last week cut one oil rig, the first reduction in 12 weeks, taking the total rig count to 862, Baker Hughes said on Friday.

That put the rig count on track for its smallest monthly gain since declining by two rigs in March with just three rigs added so far in June, although the overall level remains just one rig short of the March 2015 high from the previous week.

Oil prices dip on expectations of rising OPEC, Russian supplies

CNBC

  • Oil prices fell on expectations that producer cartel OPEC and key ally Russia will gradually increase output.
  • OPEC will meet on June 22 in Vienna, Austria, to discuss forward policy.
  • The other key development for markets is the escalating trade dispute between the U.S. and China.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices fell in early Asian trading on Tuesday on expectations that producer cartel OPEC and key ally Russia will gradually increase output after withholding supplies since 2017.

Brent crude futures, the international benchmark for oil prices, were at $78.05 per barrel at 0021 GMT, down 29 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $65.63 a barrel, down 22 cents, or 0.3 percent.

The Organization of the Petroleum Exporting Countries (OPEC) together with a group of non-OPEC producers that includes Russia started withholding oil supplies in 2017 to end a global glut and prop up prices.

Following a sharp increase in crude prices from their sub-$30 per barrel lows in 2016, the group on June 22 will meet in Vienna, Austria, to discuss forward policy.

Greg McKenna, chief market strategist at futures brokerage AxiTrader said there would likely be oil price volatility in the week ahead of the meeting.

“OPEC is fractured or fracturing,” McKenna said, as Iran, Venezuela, and Iraq “seek to veto the production increase”.

“We could be seeing the long-term relationship between the Saudis and Russia pushing OPEC into second place,” he added.

Goldman Sachs: Oil to rally above $80 a barrel

Goldman Sachs: Oil to rally above $80 a barrel  

Rob Thummel, managing director at asset management firm Tortoise said he “would recommend a small increase in production … (as) the global oil market is potentially vulnerable to an oil price spike” due to low inventories.

“We believe that OPEC will act like a central bank going forward, raising and lowering production as necessary with an objective of keeping global oil inventories at normal, 5-year levels,” Thummel said.

The other key development for global markets is the escalating trade dispute between the United States and China, in which both sides have threatened stiff tariffs on each others’ key export goods.

If implemented, China may react to U.S. tariffs by putting a 25 percent duty on U.S. crude oil imports, which have been surging since 2017, to a business now worth almost $1 billion per month.

Energy consultancy Wood Mackenzie said the United States “would find it hard to find an alternative market that is as big as China”.

OPEC is about to make a major oil market decision. Here’s how next week’s meeting could end

CNBC

  • OPEC, Russia and other producers are widely expected to begin easing their deal to limit output at a meeting in Vienna next week.
  • The gathering is shaping up to be a contentious event, with lines drawn between countries that can benefit from an output boost and those with little to gain.
  • Despite the discord, analysts think OPEC will reach a deal to moderately raise output over several months, with an option to hike further.
Khalid Bin Abdulaziz Al-Falih, Saudi Arabia's energy minister and president of OPEC, speaks as Alexander Novak, Russia's energy minister, left, listens during a news conference following the 172nd Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, May 25, 2017.

Akos Stiller | Bloomberg | Getty Images
Khalid Bin Abdulaziz Al-Falih, Saudi Arabia’s energy minister and president of OPEC, speaks as Alexander Novak, Russia’s energy minister, left, listens during a news conference following the 172nd Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Thursday, May 25, 2017.

A meeting of the world’s biggest oil producers is shaping up to be a contentious event, but analysts think the fractious group will reach consensus on their historic agreement to manage the crude market.

OPEC and other exporters including Russia appear poised to ease voluntary production limits, which have helped shrink a global oil glut since they went into effect in January 2017. The deal isn’t set to expire until the end of the year, but rising prices fueled largely by geopolitical risks have forced the producers to consider their exit strategy.

The agreement calls on OPEC and other producers to keep 1.8 million barrels a day off the market, but they’ve actually been cutting deeper than that.

OPEC meetings are closely watched because the producer group pumps about 40 percent of the world’s oil, so its policy decisions can have major implications across the energy mix. President Donald Trump, perhaps wary of the average U.S. gasoline price hovering near $3 a gallon, has recently blamed OPEC for oil prices, which recently hit 3½-year highs.

Next week’s meeting is also thornier than past gatherings because OPEC’s current production cuts are not limited to the 14-nation cartel. Russia and several other producers have also been throttling back output, and top OPEC producer Saudi Arabia needs to keep the young alliance together, or its ability to manage the market would be diminished.

Hadley Gamble previews the upcoming OPEC meeting

Hadley Gamble previews the upcoming OPEC meeting  

The Saudis will have to consider their partnership with Russia, their relationship with the United States, and simmering tensions with Iran, OPEC’s third-biggest producer and Riyadh’s chief regional rival.

“The decisions that are going to be made in Vienna are going to be more geopolitical this time than normal,” said Dan Yergin, vice chairman of IHS Markit and a Pulitzer Prize-winning chronicler of the petroleum industry.

OPEC tensions rise

Heading into the meeting, a rift has opened among producers with competing interests, raising fears of a repeat of OPEC’s June 2011 meeting, when members left Vienna without agreeing on a shared output policy.

Saudi Arabia and Russia, in particular, have spare capacity and could capture market share by pumping more. Both have expressed support for hiking output.

However, many producers are tapped out and would prefer to hold back supply, which supports prices. Those nations include Venezuela, where output has cratered amid a prolonged economic crisis, and Iran, which is facing renewed U.S. sanctions aimed at cutting off its oil exports.

But they also include Iraq, OPEC’s second-biggest producer. On Monday, the country’s oil minister, Jabbar al-Luaibi, said hiking output could “damage the international markets” and warned unilateral efforts by some members to change the policy might violate the deal.

Luaibi appeared to be responding to reports that Washington asked Saudi Arabia to fill the gap left by a drop in Iranian exports before Trump abandoned the Iran nuclear deal and slapped wide-ranging sanctions on the country.

Yergin said he believes the Saudis would back a policy that keeps international benchmark Brent crude oil prices in the $75-$85 per barrel range, which would support their objectives, including maintaining close ties with the Trump administration.

“They really wanted to see the U.S. withdraw from the Iranian deal, and that means less Iranian oil … so you have to put more oil into the market,” he told CNBC on Wednesday.

Deal remains likely

The public bickering could continue as members aim to negotiate the best possible deal for their country. But despite the discord, analysts think the group will nevertheless reach a deal to begin easing the production caps — and any increase will likely be relatively limited and gradual.

Ed Morse, Citigroup’s head of global commodities research, told CNBC that the Saudis, along with Kuwait and the United Arab Emirates, will likely push for a 500,000 barrel per day hike, leaving another half a million barrel increase until a future review of the market, perhaps in September.

That aligns with the view at RBC Capital Markets, where the firm’s global head of commodity strategy, Helima Croft, also sees OPEC erring on the side of caution with a 500,000 bpd bump. She thinks the cartel will signal a strong willingness to take further action, but she remains wary of tensions ahead of the meeting.

The OPEC boost 'is going to come' as the market is very tight: Expert

OPEC may boost production as the oil market is very tight: Expert  

“Nonetheless, we could envision a scenario where the meeting proves to be so antagonistic because of deep divisions over production and sanctions that they fail to reach a consensus, leaving big producers like Saudi Arabia and Russia to act on their own,” RBC said in a research note.

Michael Cohen, head of energy markets research at Barclays, said that would push oil prices into the $80-$85 range, but he thinks the scenario is unlikely. He forecasts OPEC will increase output by 700,000 to 800,000 bpd through the end of the year. If that happens, Barclays would stick to its view that Brent will average $70 a barrel this year and $65 next year.

Francisco Blanch, Bank of America Merrill Lynch’s head of global commodities research, sees Russia, Saudi Arabia, UAE and Kuwait gradually increasing output by about 200,000 bpd each quarter, eventually adding 1.2 million bpd by the end of next year. In his view, the producers will make the adjustments based on oil market data to prevent a price spike.

“If the cartel aggressively lifts output over the next six months, balances will quickly shift into a surplus, pushing prices lower,” Merrill Lynch said in a research note. “Yet the uncertainty around Iran and Venezuela also creates a difficult path ahead, as it opens the door to multiple OPEC+ responses.”

Oil holds a narrow range as OPEC meeting looms

CNBC

  • Oil prices were little changed in early Asian trade on Friday.
  • Investors eyed a key OPEC meeting in Vienna later in June.

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices were little changed in early Asian trade on Friday, as investors eyed a key OPEC meeting in Vienna as Saudi Arabia and Russia, architects of a producer deal to cut output, indicated they want production to rise.

Brent crude was down 3 cents at $75.91 a barrel by 0104 GMT, after settling down 80 cents the session before.

U.S. West Texas Intermediate crude was up 6 cents, or 0.1 percent, at $66.95 a barrel, having settled up 25 cents. It touched a two-week high of $67.16 on Thursday.

The Organization of the Petroleum Exporting Countries, Russia and other producers meet in Vienna on June 22-23 to decide whether a pact curbing output needs to be adjusted in order to rein in oil prices that topped $80 a barrel last month.

Brent and WTI hit 3-1/2-year highs in May but have since drifted lower, indicating investors expect the market to soon become better supplied as U.S. crude production rises and as OPEC and its allies look poised to increase output.

The OPEC boost 'is going to come' as the market is very tight: Expert

OPEC may boost production as the oil market is very tight: Expert  

Russian Energy Minister Alexander Novak said after talks with Saudi Energy Minister Khalid al-Falih in Moscow that both nations “in principle” supported the gradual exit from the deal.

“We in general support this … but specifics we will discuss with the ministers in a week,” Novak said, adding that one option would involve gradually hiking output by 1.5 million bpd, possibly starting from July 1.

Saudi’s Falih did not offer specific guidance on what any deal in Vienna could look like. But he said: “We will see where we go, but I think we’ll come to an agreement that satisfies, most importantly, the market.”

Oil prices fall on prospect of rising supplies

CNBC

  • Oil prices fell on Wednesday, pulled down by rising supplies in the U.S.
  • Expectations that voluntary production cuts led by OPEC could be loosened also weighed on markets.

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices fell on Wednesday, pulled down by rising supplies in the United States and expectations that voluntary production cuts led by producer cartel OPEC could be loosened.

Brent crude futures, the international benchmark for oil prices, were at $75.49 per barrel at 0005 GMT, down 39 cents, or 0.5 percent, from the last close.

U.S. West Texas Intermediate (WTI) crude futures were at $65.92 a barrel, down 44 cents, or 0.7 percent from their last settlement.

The Organization of the Petroleum Exporting Countries (OPEC), together with some non-OPEC producers including Russia, started withholding output in 2017 to reduce a global supply overhang and push up prices.

The group is due to meet on June 22 in Vienna, Austria, to discuss future production policy.

“The prospect of easing supply curbs from OPEC-led producers continues to be reflected in oil’s overall depressed price action,” said Lukman Otunuga, analyst at futures brokerage FXTM.

Jackie DeAngelis commodity hit

Saudi Arabia ups its oil output  

In the United States, the American Petroleum Institute (API) reported on Tuesday that crude oil inventories rose by 830,000 barrels in the week to June 8, to 433.7 million.

The rising stocks are in part a result of the surge in U.S. crude oil production, which has jumped by 28 percent in the last two years, to a record 10.8 million barrels per day (bpd).

With output in Russia rising back above 11 million bpd in June and Saudi production jumping back above 10 million bpd, supplies from the top three producers are rising.

“With rising production from U.S. shale adding to oil’s woes and reviving oversupply concerns, further downside could be a possibility in the short to medium term,” Otunuga said.

Official U.S. production and inventory data is due to be published by the Energy Information Administration (EIA) later on Wednesday.