Crude Soft as Russia, Saudis Call for Big Increase in Oil Output

by Ship & Bunker News Team
Tuesday June 19, 2018

Citing strong crude market demands, the Organization of the Petroleum Exporting Countries (OPEC) says there might be a need for more output, but that didn't assuage traders who are already nervous about the rising trade dispute between China and the U.S. and who on Tuesday caused U.S. crude to plummet 1.2 percent.

West Texas Intermediate fell 78 cents to settle at $65.07, all but wiping out Monday's gains; Brent fell 37 cents to $74.97 per barrel.

Of the differential in price drops, Jim Ritterbusch, president of Ritterbusch and Associates, stated in a note, "Brent is being relatively supported this week by increasing concerns over lost Libyan supply in which as much as 400,000 barrels per day [bpd] of output has been impacted by an attack on two key terminals."

But both benchmarks were said to have been pulled down by the China/U.S. conflict, in which the former slapped a 25 percent duty on U.S. crude oil imports that have been surging to a value of almost $1 billion per month.

The potential impact on crude that the duty could cause if not resolved favourably overshadowed - at least temporarily -  news from a technical OPEC panel that forecast strong oil demand through the second half of 2018; one of several sources told Reuters on Tuesday that "If OPEC and its allies continue to produce at May levels then the market could be in deficit for the next six months."

Another source said: "The market outlook in the second half is strong."

This outlook presumably will support the argument from Saudi Arabia and Russia that the cartel should relax its output restrictions, to be discussed when OPEC convenes in Vienna this Friday.

Fully aware that this stance will lead to major conflict on Friday, Alexander Novak, energy minister for Russia, told media on Tuesday that "Oil demand usually grows at the steepest pace in the third quarter ... we could face a deficit if we don't take measures; in our view, this could lead to market overheating."

But as of Tuesday, Algeria, Iran, Iraq, and Venezuela have stated that they still oppose any increase in output; and Kuwait and Oman are reportedly against big, immediate increases in output.

Carsten Fritsch, commodities analyst for Commerzbank, says Friday will likely see fireworks in Vienna: "Unanimity is needed for any OPEC decision: this recalls the June 2011 meeting, when OPEC was unable to agree on an increase in production to compensate for the outages ... in Libya.

"That meeting ended without any joint declaration; the then Saudi Oil Minister Ali al-Naimi described it as the worst OPEC meeting of all time."

Concerns about China aside, many analysts are fixated on what will happen with OPEC on Friday, and John Kilduff, founding partner at Again Capital, went so far earlier this week to state that the rift between members is so severe "it could be the end of OPEC as we know it."