Oil futures dropped sharply on Friday, ending the week lower, with Brent crude falling to more-than-six-week low on expectations OPEC and its allies (mostly Russia) will agree late this week to boost output by cutting the cap on daily production.
August Brent crude the global benchmark, fell $US2.50, or 3.3%, to $US73.44 a barrel in Europe – the lowest settlement since May 2, and a loss of roughly 4% for the week, according to FactSet data.
In New York, July West Texas Intermediate crude dropped $US1.83, or 2.7%, to settle at $US65.06 a barrel, the lowest finish since June 6 and down around 1% for the week.
The latest move in Trump’s trade war against China (and allies) and saw marekts rattled and the value of the US dollar rise, which in turn hit commodity prices such as for oil.
OPEC leader, Saudi Arabia, is said to be considering an output boost of 500,000 to 1 million barrels a day, while Russia is thought to be looking at a rise of as much as 1.5 million barrels a day.
Major oil producers meet June 22 and 23 in Vienna.
But several OPEC members, including Iran and Venezuela, are reportedly resisting output boosts that are intended to offset their own production falls.
News reports saying the US requested a 1-million-barrel-a-day output increase and tweets by President Donald Trump attacking OPEC for high oil prices could prove to be “additional stumbling blocks” and could see a much smaller production.
The cap in place is around 1.8 million barrels a day.
The irony of the US asking for an increase in output when its rising production is flooding the market has not been lost on OPEC members.
In his whining last week Donald Trump for a second time this year, neglecting to explain his role in the prices, and failing to mention Russia when he blamed OPEC for the high prices.
It is anther typical example from a president who is all at sea on facts and fracking.
“Oil prices are too high, OPEC is at it again," Trump tweeted on Wednesday. “Not good!” But not Russia, which is OPEC’s partner in the 1.8 million barrels a day production cap currently being shared by the oil producing group and Russia.
Trump also neglected the point out (or, more likely, doesn’t understand) that without the cap and the near tripling of prices since their 2016 lows around $US26 a barrel, the resurgence in the US oil sector, which he has lauded and the recovery in coal production and exports, not to mention LNG shipments, would not have happened.
As well by withdrawing from the agreement on Iran, Trump has added to the speculation about the future of the four million barrels a day Iran supplies to the world markets.
At the same time his huge tax cuts and deficit has added to demand inside the US.
His tweet, to use his tactics against him, is yet another example of ‘fake news’ when it comes to the realties of the oil industry and its supply and demand.
On top of the cap, the upswing in global economic activity from Europe, to China, Asia, the US, Australia and Africa has helped cut the glut and boosted demand across the world for the first time in six years.
Frustrated by low oil prices in 2016 and a persistent oversupply Saudi Arabia-led OPEC and Russia cut production beginning in early 2017 and have extended the cuts to the end of this year. Talks are due to be held on June 22 about either pushing the cap out into 2019 or starting to reduce it, The Saudis and Russia will hold informal talks in Russia tonight as their sides play the first game in the World Cup.
The Trump administration has also weighed imposing oil sanctions on Venezuela, the crumbling OPEC member country. New penalties could see Venezuela’s shrinking oil production to drop again, taking hundreds of thousands of barrels a day off the global market.
Trump clearly won’t admit to the role he and the US have played in keeping prices high and offsetting the downward pressure being exerted by rising US production. According to the Energy Information Administration (EIA)’s weekly report on Wednesday US oil production hit a weekly record of 10.9 million barrels per day (bpd) last week and is now up 30% in the past two years, thanks in part to the price rise engineered by the production ceiling agreed to by OPEC and Russia.
In fact the US daily output is now closing in on Russia’s daily output of 11.1 million barrels a day having now equalled the Saudi’s output of 10.9 million barrels a day. And Trump has eased rules and restrictions on the car industry, on coal and oil producers and on industry that were designed to tighten controls on emissions. he has imposed tariffs on imports of solar panels and attempted to limit investment in renewables to try and help his mates in the coal mining industry.
So dramatic has been the combination of those controls and the rebound in the US economy and jobs market that the EIA said the US consumed a record amount of petrol last week – 9.88 million bpd.
All this rising demand has cut into US stocks which fell 4.1 million barrels to 432.4 million barrels which is at the end of the usual range of supplies at this time of year.
Analysts think that from now on OPEC members will start allowing production to rise (as will Russia) even if the cap remains in place in some form. And if that leads to weaker prices and lower revenues and profits for American producers, watch Trump have another whine about that.
