London
Oil headed for a second weekly decline in London as Opec members were set to clash on raising production at a meeting next week.
Brent crude slipped on Friday, on course for a 1.2 per cent drop this week. Saudi Arabia’s Oil Minister Khalid Al Falih said it’s “inevitable” the group will decide to boost output gradually when it meets on June 22, although Iran, Iraq and Venezuela oppose an increase. US futures headed for a 1.5 per cent weekly gain after nationwide stockpiles slumped the most since March, narrowing the gap between the American and European markers.
Both benchmarks have struggled to regain the highs of May after Saudi Arabia and Russia proposed relaxing output caps without consulting most fellow producers, and as US President Donald Trump continued to criticise the Organisation of Petroleum Exporting Countries for boosting prices. Meanwhile, two of Libya’s biggest oil ports halted loading on Thursday after clashes erupted between rival forces, taking barrels off the market.
“Raising production seems to be certain at Opec’s meeting, the question is by how much,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.
Brent futures for August settlement were at $75.51 a barrel on the London-based ICE Futures Europe exchange, down 43 cents, at 12:49pm in London. The contract dropped 1 per cent to $75.94 per barrel on Thursday. The global benchmark crude traded at a $8.86 premium to West Texas Intermediate for the same month.
WTI crude for July delivery traded at $66.84 per barrel on the New York Mercantile Exchange, down 5 cents. The contract is poised for the first weekly advance in a month. Total volume traded was about 18 per cent below the 100-day average.
Daunting task
Oil has been whipsawed this month by uncertainty over whether major producers will ease their cuts. With prices last month recovering to 2014 levels and global inventories shrinking, the International Energy Agency has warned that crude demand growth could slow. Reimposed sanctions on Iran by the US and output declines from Venezuela could tighten the market further.
Saudi Arabia’s Al Falih and Russian counterpart Alexander Novak met Thursday in Moscow, as the two nations played in the football World Cup. While they share an understanding on the need for a smooth increase, they must convince other members of Opec to drop their opposition and endorse a production hike when they meet in Vienna next week.
“The market is likely looking for Opec to announce that production cuts will run until the end of the year,” said Jens Naervig Pedersen, senior analyst at Danske Bank A/S. “After that caps will be raised. For Opec it’s important now to strike a fine balance and avoid a “taper tantrum” in the oil market as normalisation will start sooner rather than later.”
Opec and its allies could consider an output increase of as much as 1.5 million barrels per day, according to Novak. In theory, that would be enough to offset the supply losses from Venezuela and Iran as foreseen by the IEA. Saudi Arabia has been discussing different scenarios that would raise production by between 500,000 and 1 million barrels per day, according to people familiar with the matter.
In the US, the decline in nationwide crude stockpiles helped buoy WTI prices this week. The Energy Information Administration said inventories fell 4.14 million barrels last week, more than the estimate in a Bloomberg survey. Gasoline and distillates also slid, while domestic oil production climbed to 10.9 million barrels per day, topping 10 million barrels per day every week since early February, according to the EIA.
