Oil headed for its longest run of losses since February as investors weighed Saudi Arabia and Russia’s proposal to boost output to ease concerns over supply shortages.
Crude futures in New York slid 1.6 percent on Tuesday after tumbling 4 percent on Friday. Saudi Arabia and Russia said on Friday that they may restore some of the output halted as part of a deal between OPEC to make up for potential losses from other members, most notably Venezuelan supply and Iran. There was no settlement Monday because of the U.S. Memorial Day holiday and all trades will be booked Tuesday.
Crude earlier this month rose to the highest level in more than three years after US President Donald Trump decided to reimpose sanctions on Iran and as Venezuelan output continues to fall amid an economic and political crisis.
Goldman Sachs Group is maintaining its bullish view on prices, saying an output increase from Russia and Saudi Arabia would only offset involuntary production declines, and demand is still strong.
“Oil fell in a panic sell-off on expectations Saudi Arabia and Russia boosting output will loosen the balance between supply and demand,” Takayuki Nogami, chief economist at state-backed Japan Oil, Gas &Metals National, said by phone from Tokyo.
“Now the market is digesting that information.”
West Texas Intermediate for July delivery fell as much as 3.1 percent to $65.80 a barrel before trading at $66.80 a barrel on the New York Mercantile Exchange as of 1:44 p.m. in Tokyo. Futures are headed for a 5th straight session of declines, the longest such stretch since Feb. 9. Prices dropped $2.83 to $67.88 on Friday, the biggest loss since July 5.
Brent futures for July settlement added 23 cents, or 0.3 percent, to $75.53 a barrel on the London-based ICE Futures Europe exchange. Prices on Monday lost $1.14 to $75.30. The global benchmark crude traded at a $8.72 premium to WTI for the same month.
Futures for September delivery climbed 0.5 percent to 465.2 yuan on the Shanghai International Energy Exchange. The contract dropped 3.1 percent to 462.8 yuan on Monday, when trading volume rose to the highest levels since the futures debuted on March 26.
OPEC and its allies are likely to gradually raise oil output in the second half, Saudi Energy Minister Khalid Al-Falih said last week at the St. Petersburg International Economic Forum in Russia. He and his Russian counterpart Alexander Novak said that while scaling back the supply caps was “on the table,” no decision had been made.
“While all roads are pointing to OPEC raising production, the real question is by how much,” Stephen Innes, head of trading at Oanda Corp., said in a note.
The plan for OPEC and its allies to boost output once more follows growing concerns that oil prices at current high levels will erode consumption, and that Venezuelan and Iranian barrels being removed from the global market will create a demand and supply deficit.
Venezuela is now producing just 1.4 million barrels a day, down from 3 million barrels a day just a few years ago, while UBS AG Wealth Management forecasts a drop of about half a million barrels day from Iran.
Saudi Arabia and Russia’s proposal to revive production signals supplies are currently tight, and isn’t a bearish development, Goldman analysts including Damien Courvalin wrote in a report. A gradual implementation of a plan to boost output by 1 million barrels a day would still leave the market in deficit through the third quarter of 2018, according to Goldman.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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