Oil slips further below $80/bbl on talk OPEC may lift output

Mae Love
May 28, 2018

Oil prices recorded their largest one-day drop in two weeks on Thursday, with expectations building that OPEC could wind down an output deal that has been in place since the start of 2017 due to concerns about supplies from Venezuela and Iran. Oil producers are debating an increase ranging from 300,000 barrels a day at the low end, backed by Gulf producers including Saudi Arabia, and a larger increase of about 800,000 barrels a day favored by Russian Federation, one person said.

The excess in oil inventories, which has weighed on prices for three years, plunged in April to less than the five-year average for stockpiles in developed nations, according to people with knowledge of the data assessed at the meeting of the Joint Technical Committee of OPEC and other producers last week in Jeddah, Saudi Arabia.

"If prices get above there, that will further intensify and increase the likelihood that OPEC will do something".

"If prices get above there, that will further intensify and increase the likelihood that OPEC will do something.It's going to be very hard to overcome this level on a sustainable basis before the OPEC meeting". U.S. West Texas Intermediate (WTI) crude CLc1 futures fell $1.13 to settle at $70.71 a barrel, a 1.57 percent loss.

In 2016, OPEC and several oil producing countries outside the cartel agreed to cut oil production by a total of 1.8 million barrels per day in an effort to stabilize global oil prices.

With supplies from Iran and Venezuela now at risk, speculation abounds that the Organization of Petroleum Exporting Countries and its allies may ease the cutbacks.

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SBI Capital Markets said in a recent report that rising crude oil prices may worsen the country's Current Account Deficit (CAD) to 2.5 per cent in the present financial year from an estimated 1.9 per cent in the last financial year.

Oil prices tumbled Friday after Saudi Arabian and Russian oil ministers said they're likely to boost production soon in response to political troubles that could slash output in Iran and Venezuela.

OPEC and non-OPEC ministers meet in Vienna on June 22-23, and a final decision will be taken there.

Trump has forged a close relationship with Saudi Arabia, and that country is aiming to defuse any political tensions caused by high crude and gasoline prices, says Tom Kloza, global energy analyst for the Oil Price Information Service.

Meanwhile, refinery runs fell 7,000 bpd to 16.63 million bpd, a full 3.8 percent below the same week past year, according to the EIA data.

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