Crude Slips as Russia Says it's Time to Phase Out Production Curbs

by Ship & Bunker News Team
Thursday May 24, 2018

For months the analytical consensus has been that Venezuela above everything else is cause for concern in the crude world, and news on Thursday that plummeting output from the Bolivian republic will prompt an easing of output curbs from the Organization of the Petroleum Exporting Countries (OPEC) once more resulted in oil slipping further below $80 per barrel.

West Texas Intermediate fell $1.13 to settle at $70.71 per barrel, and Brent fell $1.01 to settle at $78.79 per barrel.

While rumours that the cutback initiatives might be lifted is nothing new, Thursday's poor market performance is said to have been driven by Alexander Novak, energy minister for Russia, telling media that restrictions on oil production could be eased "softly" if OPEC and non-OPEC countries see a proper supply and demand balance when they meet in June in Vienna.

Up until recently, Novak repeatedly sent contrary signals that the cutback initiative, now in its second year, could be extended though 2019 if the market warrants.

As if to help Novak steer the rhetoric in an entirely new direction, Vagit Alekperov, president of Lukoil, also said on Thursday the time has come to increase global oil output because prices have risen to $80 per barrel; but he couched the message in safe terms, saying the OPEC cutback deal should be extended into 2019 but remain "flexible."

All this caused Jim Ritterbusch, president of Ritterbusch and Associates, to state in a note, "We still believe that a production increase will still be forthcoming that will become official at next month's OPEC meeting.

"In the meantime, even the slightest suggestion of such a decision, especially from the Saudis, could force a 1-2 percent price selloff as seen this morning."

In fairness, Thursday's crude price drops were also the result of market participants taking profits ahead of the U.S. Memorial Day holiday weekend, according to Walter Zimmerman, chief technical analyst at ICAP-TA.

The only surprise to analysts was that U.S. president Donald Trump calling off a planned summit with North Korean leader Kim Jong Un on Thursday did not pressure oil prices; but Carsten Fritsch, strategist for Commerzbank, noted that the development weakened the U.S. dollar, which supported crude.

Earlier this week, mixed signals about the fate of OPEC's cutbacks were delivered when the cartel stated it might have to raise production due to worries over Venezuela and Iran, while a member of Russia's energy ministry told media his country will consider extending the cutbacks and discuss the possibility at the OPEC summit next month.