Oil prices slipped to multi-week lows on Monday after Saudi Arabia and Russia announced they may increase their output and government data showed US production continues to rise. Statoil photo.
Oil prices fall in thin trading Monday
Oil prices fell in light trading on Memorial Day Monday (US) and Spring Bank holiday (UK) after Saudi Arabia and Russia said they could boost their crude production to contain supply shortfalls at a time when US production continues to grow.
By 1:42 p.m., EDT, benchmark Brent futures were down $1.15 to $75.32/barrel, rising from a session low of $74.49/barrel. US West Texas Intermediate dropped $1.41 to $66.47/barrel. WTI fell to a session low of $65.80, a six-week low.
Oil prices have risen significantly from their 2016 low of under $30/barrel mostly due to the OPEC supply cut agreement which began in January 2017. Participants in the pact agreed to cut their combined production by 1.8 million barrels per day (b/d) to cut the global glut of crude that tanked oil prices in 2014.
Under recent pressure from US President Donald Trump and on concerns that rising oil prices could halt global economic growth and boost inflation, Saudi Arabia and Russia said they would ease the cuts and raise oil production by about 1 million b/d.
“The pace of the recent rise in oil prices has sparked a debate among investors on whether this poses downside risks to global growth,” Reuters reports Chetan Ahya, chief economist at U.S. bank Morgan Stanley, wrote in a weekend note.
Russia’s Energy Minister Alexander Novak said returning to October 2016 output levels, which are the baseline for the current supply cut agreement, is one option for easing the cuts.
“Given that our crude balance is short some 825,000 b/d over (the second half of the year), a gradual increase of about 1 million b/d would probably limit stock draws to quite some extent,” Vienna-based consultancy JBC Energy said, according to Reuters.
However, some analysts voiced concerns about OPEC countries’ abilities to actually boost their output to fill the supply gap.
“Only a few members have the capability to increase production, so implementation will be complicated,” one OPEC source told Reuters.
On Friday, Baker Hughes reported the US oil rig count rose by 15 to 859, up 137 from this time, last year and now at the highest since 2015.
According to the US Energy Information Administration, US crude production jumped 27 per cent in the past two years to 10.73 million b/d. Russia’s oil output is 11 million b/d.