Published: Sun, June 17, 2018
Money | By Michele Stevens

Oil steadies but specter of higher supply curbs gains

Oil steadies but specter of higher supply curbs gains

As Bloomberg writes in an article "Iran Expects OPEC to Stick to Supply Limits", the Organization of Petroleum Exporting Countries and its partners will meet next week and debate whether to restore output halted previous year.

While economic growth is projected to be strong in the US, Europe and Japan, there is a chance of a slowdown in China and India, OPEC said.

U.S. President Donald Trump renewed his attack on OPEC on Wednesday, and the International Energy Agency said the world may face a supply gap by late 2019 if OPEC can not cover any shortfalls. The country pumped 11.09 million barrels a day in the first week of June, according to a person with knowledge of the matter, exceeding its agreed limit of 10.95 million.

Russia, alongside Saudi Arabia, has the highest spare capacity to boost production. The two countries together accounted for nearly 17% of world oil consumption a year ago, making them ideally suited to take on the oil exporting cartel.

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The oil price will be a critical factor when OPEC and its partners meet in Vienna next week to decide on a possible extension of a production cut deal - which crucially included giant producer Russian Federation - that has been key to the oil price recovery.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $66.61 a barrel, down 3 cents from their last settlement.

"The prospect of easing supply curbs from OPEC-led producers continues to be reflected in oil's overall depressed price action", said Lukman Otunuga, analyst at futures brokerage FXTM.

"The United States shows by far the biggest gain (about 75 percent of the total across 2018 and 2019), but recently this expansion has not been without stress", the report said, referring to a gap in recent weeks between the U.S. and European oil futures contracts. "There is going to be a real issue", he wrote, predicting prices above $US150 per barrel within two years.

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"Higher production in Saudi Arabia, Algeria and Iraq was partially offset by decreased crude oil production, mainly in Nigeria, Venezuela and Libya", the oil cartel said.

President Donald Trump declared on Twitter that "oil prices are too high" and "OPEC is at it again", implying he believes the world's largest oil producers are constricting supply beyond what is reasonable to support their ailing economies. Producers meet on June 22-23 to set policy.

"At OPEC's meeting in a good week's time, Saudi Arabia apparently plans to make several proposals that all boil down to increasing production on a one-off or gradual basis by between 500,000 and 1 million barrels per day", Commerzbank analysts said in a note. "My opinion is the world of energy requires longer periods of stability, both on the oil price side and in the relationship between members and non-members of OPEC, before any major decisions on oil cuts can be taken", she said.

Trump drew lots of tweeted responses, including one from oil hedge fund founder Pierre Andurand, who expects prices will be above $150 a barrel in less than two years.

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