Return to pre-deal oil output levels possible, says Russia's Novak

Marco Green
May 28, 2018

Top producers Saudi Arabia and Russian Federation said last week that OPEC and other suppliers may boost output in the second half of the year, prompting a slide in prices which had reached $80 a barrel for the first time since 2014.

Brent crude futures were down 44 United States cents at $78.35 a barrel at 7.38am GMT, having hit their highest since late 2014 at $80.50 earlier in May.

Brent crude futures, the benchmark for oil prices outside the US, slumped 2.27% to $77.00 a barrel as of 10:02 AM ET (14:02 GMT). The 4 percent loss on Friday was the commodity's biggest slide since February and was a turn after six consecutive weeks of gains.

"Oil prices will soften in the near term, as a outcome of Opec easing supply curbs", said Ashley Kelty at Cantor Fitzgerald.

Oil has been trading near a 3 1/2-year high on concern about the potential supply disruptions from Venezuela and Iran.

He added that Iran's total exports of crude stood at an average of 2.5 million barrels per day (m/bpd), SHANA news agency reported.

OPEC and non-OPEC ministers meet in Vienna on June 22-23, and a final decision will be taken there. The bullish tone of recent market chatter, increasingly punctuated with talk about oil prices climbing past $100, $150 and even $300, suddenly looks overdone.

OPEC and allied oil producers including Russian Federation concluded that the crude market re-balanced in April, when their collective production cuts achieved a key goal of draining the surplus in global stockpiles.

The move will be seen as a victory for USA president Donald Trump who last month attacked Opec for "artificially" boosting prices and has leaned on United States allies in the Gulf, including Saudi Arabia, to ensure oil markets remain well supplied. Both men said the size of the boost was still subject to negotiation.

At the same time, rapidly declining output in Venezuela's as the country's economic turmoil has worsened has posed another risk to supplies.

Managing Director Ali Kardor said Iran is exporting almost 2.5 million barrels of crude oil on a daily basis.

"I think the output reduction will not be as significant as many expect. That possibility is top of the mind for traders and as a result oil prices are slipping", McKenna said.

Speaking in St. Petersburg, Saudi Energy Minister Khalid al-Falih, whose country is the de facto leader of Opec, said any easing of restrictions on pumping levels would be gradual to avoid a shock to the market. But now, they are losing market shares. Saudi Arabia needs prices above $80 a barrel to balance its budget, Mr. Tran said. "The idea would be to bring compliance back down to 100 percent, which would mean allowing members to produce more to offset Venezuela's declines".

"This is not 2014 all over again. This is a market trying to soft land and not have either demand destroyed or price destroyed", he said.

Other reports by Click Lancashire

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