Oil dips on OPEC output increase

Muhammad Barkindo

Muhammad Barkindo

The premium of Brent crude over US futures narrowed to around $5.21 a barrel on Monday, down from almost $10 a week ago, thanks to the steep drop in the premium of USA coastal grades over the West Texas Intermediate benchmark price. The prompt Brent/WTI spread narrowed to $5.85/b on ICE in USA afternoon trading, its tightest since May 18.

Again, on June 22 as OPEC was concluding its meeting on whether to hold or increase crude oil supply, Trump tweeted, "Hope OPEC will increase output substantially". Driving season means greater demand for gasoline and greater demand invariably means higher prices.

Goldman Sachs also warned that an "outage at Syncrude Canada's oil sands facility could leave North America short of 360,000 bpd of supply for all of July". This partly explains the stronger response from WTI, as USA crudes could be called upon to plug the remaining holes.

The price of oil LCOc1 traded in London fell on Monday after the wider agreement, by $1.15 to $74.40 a barrel. ICE August Brent lagged slightly, settling $2.50 higher at $75.55/b. Total volume traded was more than double the 100-day average.

Futures rose 1.8 percent to 467.4 yuan a barrel on the Shanghai International Energy Exchange in afternoon trading, after edging down 0.2 percent on Friday. The move still represents a loosening of OPEC's tight controls on oil production, and prices have been hobbled by the news, which first came out of a Saudi Arabia-Russia joint statement some weeks ago.

"Obviously we've got a market that is stressed from a standpoint of supply", Perry told reporters.

The only country that can increase production is Saudi Arabia, so its interpretation of the deal is the 1 that matters.

On Friday, the Organization of the Petroleum Exporting Countries and its allies agreed to modestly boost global crude supplies. They now have more room to respond to supply risks and moderate prices at a time when United States sanctions threaten to disrupt Iranian and Venezuelan exports. That's a signal that exports from the Islamic Republic may fall much further, more quickly than expected. Based on May production data, this entails an increase of roughly 700 kb/d (thousand barrels per day). Meanwhile, every minister seemed to have his own interpretation of what the hike meant for the market. While the group has struck a deal, Iran and Venezuela criticized the Saudi position, saying the accord didn't allow any member to replace one another's market share.

"The family is growing and for us, the more the better".

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