Crude Falls as US Asks OPEC to Up Output

Iraq has expressed interest in opting out of the OPEC cutbacks altogether. File Image / Pixabay

The rumour-fraught issue that has caused crude market tumult of late - that the Organization of the Petroleum Exporting Countries (OPEC) might turn back on its taps after nearly two years of restraint - gained sharper focus on Tuesday and caused both international benchmarks to hit session lows before recovering at the last minute.

West Texas Intermediate hit a session low of $64.22, the lowest since April 10, before rising 77 cents to $65.52 per barrel, while Brent touched a low of $73.81 before rising 9 cents to settle at $75.38 per barrel.

The cause for the temporary losses was a report from Bloomberg that the U.S. government had asked OPEC to increase oil production by about 1 million barrels per day (bpd); supposedly, people familiar with the matter and who did not elaborate on how the request was conveyed claimed that Washington had asked Saudi Arabia and other OPEC producers to make the boost, supposedly inspired by U.S. president Donald Trump's persistent complaints that the cartel's cutbacks have caused gas prices to be artificially - and unacceptably - high.

The rumour has a degree of verisimilitude in light of U.S. treasury secretary Steven Mnuchin last month disclosing that Washington had "various conversations with various parties about different parties that would be willing to increase oil supply to offset" the impact of U.S. sanctions on Iranian oil output.

OPEC will discuss its production policy for the second half of 2018 in meetings scheduled on June 22 and 23 in Vienna, but it's already common knowledge that the Saudis and Russia have stated that a gradual production increase is feasible without necessarily having to scrap the cutbacks over the long term.

Tuesday's addition to the OPEC rumour mill was augmented by word that Iraq would be happy to exit the cutbacks entirely: Platts quoted Qusay al-Yassiri, a newly-elected politician in that country, as saying, "For sure, Iraq's share of exports should be unlimited so it can compensate for the low oil prices which have increased taxes on the people and workers.

"We should be able to export whatever we can via open share, we have an abundance of oil and we need to benefit from that."

Platts notes that Iraq has long-term ambitions to boost output capacity to 8 million b/d by 2025, with this target dependent on billions of dollars of new investment in infrastructure.

Meanwhile, Russia is trying to assume an impartial stance as the OPEC talks loom closer: Alexander Novak, energy minister to the former Soviet Union, on Tuesday said that the OPEC and non-OPEC countries should take a decision on a possible adjustment of the current deal on oil output cuts by looking into oil demand.

Last weekend, a hastily-arranged meeting between the Saudis, Kuwait, the United Arab Emirates, and Oman took place and was rumoured to set the stage for an easing of the cutbacks; Platts noted that Kuwait, the Saudis, and the UAE "are among the few OPEC members who could raise output quickly."