Oil Resumes Downward Plunge Over Speculations Of OPEC Output

Meanwhile, Canada's output recovers while Iraq's exports are still hung up: File Image/Pixabay

As if to demonstrate the fragility of oil trading mentality, the commodity settled lower on Thursday based on comments from Alexander Novak, deputy prime minister of Russia, who said he didn't think additional output cuts from the Organization of the Petroleum Exporting Countries (OPEC) was necessary.

In the previous session, oil enjoyed a momentary series of gains after huge stock drawdowns in the U.S. persuaded traders that demand was robust despite economic headwinds.

Brent on Thursday settled down $2.10, or 2.7 percent, to $76.25 per barrel, while West Texas Intermediate settled down $2.51, or 3.4 percent, to $71.83.

Novak was quoted as saying, "I don't think that there will be any new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries..."

However, losses were said to be curtailed somewhat by renewed optimism that U.S. president Joe Biden and republican Kevin McCarthy were close to a deal to cut spending and raise Washington's $31.4 trillion debt ceiling, thus preventing a possible default.

Analysts at Standard Chartered  stated in a report that short speculative positions in crude are now as bearish as they were at the start of the pandemic in 2020, in advance of OPEC's policy meeting on June 4, and they noted that "the latest build-up in short positions significantly increases the probability of further production cuts when OPEC+ meets."

In other oil related news on Thursday, Canadian media reported that wildfires in the western portion of that country were finally contained and production and supply are back to normal levels.

This dovetailed with news that S&P Global Commodity Insights raised its 10 year production outlook for Canadian oil sands for the first time in more than half a decade.

The new forecast projected oil sands production to reach 3.7 million barrels per day (bpd) by 2030, or half a million barrels per day higher than today; this represents an increase of 140,000 bpd in 2030 from the previous outlook.

Celina Hwang, director, North American crude oil markets at S&P, said, "Although producers continue to demonstrate capital discipline, stronger balance sheets are now giving oil sands companies renewed confidence in regard to their intentions for capital spending."

Meanwhile, market sources told CNBC on Thursday that Turkey's runoff election is exacerbating delays to restart 450,000 bpd of crude oil exports from Iraq, as Ankara studies its relationship with Baghdad.

Iraq's oil minister on May 23 said Baghdad has informed Turkey it is able to restart flows through Ceyhan and awaits Ankara's response.