Saudis put brakes on oil’s rally; prices plunge

Marco Green
May 28, 2018

U.S. West Texas Intermediate crude futures were at $68.84 a barrel, down $1.87.

Crude oil West Texas Intermediate (WTI) melted down 4.24% on Friday (trading at around 67.88) as Saudi Arabia and Russian Federation are considering ramping up production in order to compensate for the sharp decrease output from Venezuela and potentially also Iran which is at risk of sanctions from the United States.

Speaking during a panel discussion hosted by CNNMoney's Emerging Markets Editor John Defterios, Saudi energy minister Khalid Al-Falih said he was engaged in intensive discussions with Russian Federation and other OPEC officials about how to balance the oil market.

Explorers in the USA shale patch, meanwhile, were seen resuming their expansion plans this week as they continue to find a home for their crude around the world. USA energy companies added 15 rigs looking for new oil in the week ending May 25, bringing the rig-count to 859, the highest level since 2015, in a strong indicator that American crude production will continue to rise.

The two oil-rich countries are the key movers behind a pact between OPEC and other producers that has limited production since 2017, but which experts fear may soon lead to a spike in prices.

The increase lifted the wagers from 6-month lows, in the week to May 22, according to data from the U.S. Commodity Futures Trading Commission (CFTC). The global benchmark crude traded US$8.36 above WTI for the same month, after closing at the biggest premium since April 2015 on Thursday.

In China, Shanghai crude oil futures (ISCc1) tumbled by 3.8 percent to 462.3 yuan ($72.34) per barrel.

Recently, prices have surged to four-year highs thanks to a variety of factors.

Trump's April 20 gave voice to a concern held widely in the US and other consuming countries that oil's rally from less than $30 in early 2016 to more than $70 in NY risked becoming a threat to global economic growth.

However, market participants should not read too much into Friday's sell-off due to thin volume ahead of the U.S. Memorial Day holiday weekend, said Derek Rollingson, portfolio manager of the ICON Energy Fund.

The bullish tone of recent market chatter, increasingly punctuated with talk about oil prices climbing past $100, $150 and even $300, suddenly looks overdone.

The prospect of renewed sanctions on Iran after Trump pulled out of an global nuclear deal with Tehran has further supported prices in recent weeks.

Current discussions are aimed at relaxing record-high compliance with the production cuts, the sources said, in an effort to cool the market after oil hit $80 a barrel on concerns over a supply shortage.

With assistance from Tsuyoshi Inajima, Grant Smith, Sharon Cho and Robert Tuttle. Off-topic, inappropriate or insulting comments will be removed.

Other reports by Click Lancashire

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