All eyes in the crude analytical community on Tuesday were focused on Russia, which has long thought to be eager to leave the Organization of the Petroleum Exporting Countries' (OPEC) output cut agreement and pump full out - a fear that gained credence when Alexander Novak, energy minister for the former Soviet Union, told media that his country has not yet decided whether it would be necessary to extend an oil deal between OPEC and its allies.
Novak went on to say that "all options" are being considered and that Russia will monitor the situation on oil markets before making a decision on whether such an extension is needed.
The minister's remarks were followed by those of president Vladimir Putin, who told reporters, "We are ready for cooperation with OPEC in decision-making....but whether it would be cuts, or just a stoppage at the current level of output, I am not ready to say."
Vladimir Putin, president, Russia
We are not supporters of uncontrollable price rises
Russia's potential exit from the OPEC deal has long been viewed as a catalyst for rampant crude production output that would contribute to another global glut and depressed prices; and even though pundits up until recently have been fearing the exact opposite would occur due to output shortages in Venezuela, Iran, and other countries, the non-conclusive remarks of Novak and Putin caused jittery traders on Tuesday to send oil prices falling from five month highs.
West Texas Intermediate crude settled 42 cents lower at $63.98 per barrel, while Brent fell 49 cents to $70.61.
Ironically, both benchmarks earlier hit levels not seen since November as a result of concern that violence in Libya, which pumps around 1.1 million barrels per day (bpd), could tighten global markets: on Tuesday the eastern Libyan National Army forces of Khalifa Haftar closed in on the internationally recognized government in Tripoli, with resulting casualties.
Carsten Fritsch, oil analyst at Commerzbank, noted that "The oil market is already undersupplied, so if supply from Libya also falls away the supply deficit will become even bigger."
But proving once more that sentiment in the commodities trading community can turn in the space of a heartbeat, the news from Russia replaced worries of tightening with oversupply, and Norbert Ruecker, head of macro and commodities research at Julius Baer, remarked, "Russia already signaled its willingness to raise oil output from June; fuel remains costly in emerging markets, with soft currencies adding to high oil prices."
That the remarks of Novak and Putin would have such an impact on trading behaviour is especially baffling considering the Russian president also declared, "We are not supporters of uncontrollable price rises," and that "we and our partners ... are closely watching the market; we agreed that if there is a need for joint efforts, we will gather in the second half of the year and hold discussions."
The next element that will likely influence traders is the Energy Information Administration revealing on Tuesday that U.S. crude production is expected to rise 1.43 million bpd in 2019 to average 12.49 million bpd, up from the EIA's previous forecast for a rise of 1.35 million bpd.
Also, the American Petroleum Institute was scheduled to issue its own supply report ahead of Wednesday's official figures from the Department of Energy, and Phil Flynn, analyst at Price Futures Group, remarked that "I think what's really giving the market pause is that nobody can actually come close to predicting what's going to happen in tonight's API report."