Oil prices fell on Thursday on concerns that OPEC may decide next month to increase its output to compensate for dropping Venezuelan production and possible decreases in Iran’s crude exports. Apache photo.
Oil prices buoyed by falling US dollar
Oil prices fell on Thursday on expectations that participants in the OPEC supply cut agreement may be winding down the deal on concerns of falling global crude stocks due to dropping crude production in Venezuela and US sanctions which are expected to cut Iran’s exports.
By 1:54 p.m., EDT, benchmark Brent crude futures fell 66 cents to $79.18/barrel and US WTI dropped 80 cents to $71.04/barrel. The Canadian Crude Index was down 83 cents to $50.46.
On June 22, OPEC will meet in Vienna. Reuters’ sources say at that meeting, the cartel may opt to increase its output to compensate for Venezuela’s drop in production and Iran’s expected crude export decline.
The Trump administration’s decision to abandon the Iran sanctions relief agreement and impose sanctions on the country’s crude exports will impact global crude supplies.
The Interfax news agency reported that Russian Energy Minister Alexander Novak said production cuts could be “softly” eased if participants in the pact agree that the oil market is rebalancing.
Novak added that the deal will stay in place for now. Russian oil company Lukoil argues the agreement should stay in place, but needs to be altered.
“A move to put more oil on the market by Saudi Arabia and Russia would be very bearish for prices. The mere contemplation of it has hit oil prices this week,” John Kilduff, a partner at Again Capital LLC told Reuters.
Venezuelan crude production now sits at about 1.4 million barrels per day (b/d), according to OPEC secondary sources. At its peak in 1997, Venezuela produced 3.28 million b/d, but in recent years a growing economic crisis in the South American country has left the state-run oil company PDVSA struggling to pay its bills and fund operations.
On Sunday, Venezuela’s President Nicolás Maduro won re-election in a vote that has been called a “sham” election by the US.
Following the vote, US President Donald Trump signed an executive order imposing new penalties designed to block Maduro from selling off government debt to enrich himself, but the order did not include direct penalties on the oil sector.
The EO bars US companies or citizens from buying debt or accounts receivable from the government in Venezuela, including Petróleos de Venezuela. Petróleos de Venezuela is the state-owned oil company which is parent of Citgo Petroleum Corporation.
In January 2017, OPEC along with other oil producing nations, including Russia, agreed to cut their total production by a combined 1.8 million b/d. The agreement has helped cut supplies and boost oil prices. Last week, Brent broke through the $80/barrel thresholdk for the first time since November 2014.
The agreement has worked to cut down the oversupply of oil even though US crude production has risen significantly. According to the US Energy Information Administration, in February, the US produced 10.3 million b/d.
The US dollar helped underpin oil prices on Thursday. After US President Donald Trump officially called off the planned summit meeting with North Korean leader Kim Jong Un, the US dollar index fell. The decline supported crude futures, according to Commerzbank strategist Carsten Fritsch.
The weaker US dollar, down 0.2 per cent against a basket of currencies, made oil cheaper and more attractive to buyers not using the greenback.