Crude Prices Fall as OPEC, Russia Output Rises

Analysts still see oil heading higher in the longer term. File Image / Pixabay

Last week, the crude market made consistent price gains based on the Organization of the Petroleum Exporting Countries' (OPEC) decision to increase production; but now, with reports that Saudi Arabia and Russia achieved output increases in June, prices on Monday fell, with West Texas Intermediate losing 21 cents to $73.94 and Brent falling $1.93 to $77.30 per barrel.

The reason for this seemingly contradictory behaviour was explained by Gene McGillian, vice president of market research at Tradition Energy: "There seems to be great uncertainty about how much oil will be added to the supply side of the market; how this really is going to play out seems to be up in the air."

A Reuters survey showed that Saudi Arabia's output is up by 700,000 barrels per day (bpd) from May, close to its 10.72 million bpd record of November 2016; and according to Russia's energy ministry, the former Soviet Union pumped 11.06 million bpd in June from 10.97 million bpd in May.

Reuters also noted that OPEC increased by 320,000 bpd in June.

Still, traders are said to be nervous over unplanned outages from Canada to Venezuela and Libya, not to mention the as yet undetermined fallout from the U.S. sanctions against Iran and the growing trade war with China.

Also influencing trading was news that the premium for WTI for the front month compared with the second month CLc1-CLc2 widened to as much as $2.38 per barrel, the most since August of 2014 - which indicates the market expects supply shortages to be more severe in the short term.

Tamas Varga, strategist for PVM Oil Associates, expressed his sentiments about moving forward: "We are entering the second half of the year with a huge amount of uncertainty surrounding the supply side of the equation.

"Depending on your belief, you could just as easily bet on $100 as $60 by the end of the year."

Helima Croft, the  respected global head of commodity strategy at RBC Capital Markets, agreed with Varga's assessment of Q2: she told CNBC that "I think this market is going to tighten in the back half of this year, I think there's no way around this."

She added that in the short term, "What we're looking for now in WTI is we're looking to go to $77; if we break above that, then there's considerable room to run" - meaning, Croft thinks crude could keep hitting multi-year highs should it rally over 3 percent of its current price.

Earlier this year Croft said it wouldn't be out of the question for crude to hit $100, and many other experts expressed the same sentiment, including Bob Parker, investment committee member at Quilvest Wealth Management, who in May worried that the efforts of OPEC, the Saudis, and Russia wouldn't be enough to prevent triple digit prices from happening, as long as there was a "complete collapse" of production in Venezuela.