Crude Benchmarks Mixed as OPEC, Russia Send Mixed Signals About Production Cutbacks

experts react to ongoing woes in Venezuela and tensions between China and the U.S. File Image / Pixabay

Despite plenty of persuasive data and assurances from experts that global supply will be able to offset any sudden drop in crude production due to geopolitical tensions, traders on Tuesday were fretful enough about falling Venezuelan output and a possible drop in Iranian exports to cause Brent to climb 35 cents to $79.57 per barrel; however, West Texas Intermediate dropped 11 cents to $72.13 per barrel.

Still, mixed prices did not dissuade Norbert Ruecker, head of commodities and macro research at Julius Baer, from offering that "The solid global economy, selected supply disruptions, and the upbeat market mood in particular in oil frame a positive environment."

But Phil Flynn, analyst at Price Futures Group, stated the obvious while contemplating other factors that could affect the crude market in the days to come: "Trade is positive for energy demand; if we get into a trade war, it could potentially slow economic growth," he said, referring to U.S. president Donald Trump saying he was not satisfied with recent trade talks between his country and the China but would keep the door open for further negotiations.

Another factor that usually influences crude prices to a degree are messages from the Organization of the Petroleum Exporting Countries (OPEC ) and its members, but while word that either its crude cutbacks are working or that they may have to be extended usually result in support for prices, Tuesday saw mixed messages about the impending trajectory of the cartel's initiative.

In the text of a speech obtained by Reuters, Roman Marshavin, head of the international cooperation department of Russia's energy ministry, stated that his country does not rule out the possibility of the cutbacks being extended to 2019, and that the issue will be discussed at a meeting between OPEC and other producers in Vienna next month.

But OPEC and oil industry sources familiar with the matter told Reuters that the cartel may decide to raise output next month due to worries over Iranian and Venezuelan supply and after Trump complained that the oil rally was going too far.

One source declared that "all options are on the table" but added there is no agreement yet by how much the cutbacks could be eased, while a second source remarked that "We are still studying the different scenarios" and that a decision next month to ease the curbs may take three to four months to put into effect.

Even though data strongly suggests that surging output from countries such as the U.S. will more than compensate for loss of production elsewhere, experts agree that Venezuela is the top country in the oil producing world to keep a close eye on, and earlier this week Fatih Birol, executive director of the International Energy Agency, called it "the  major risk for the oil markets for the next weeks or months to come."