Oil slips on strong dollar as key OPEC meeting looms

Devin Lawrence
June 30, 2018

The Organization of Petroleum Exporting Countries and its allies are set for contentious meetings on June 22 to 23 as they review whether to unwind supply curbs put in place 18 months ago.

OPEC nation Iran said it expects the group to stick with its pact to restrain oil supply as world markets don't need more crude. "Oil prices are artificially Very High!"

Brent and WTI hit 3-1/2-year highs in May but have since drifted lower, indicating investors expect the market to soon become better supplied as USA crude production rises and as OPEC and its allies look poised to increase output.

USA crude output has risen by nearly 30 per cent in the last two years, and it is now close to top global producer Russian Federation, which produced 11.1 million bpd overall in the first two weeks of June.

Brimming with confidence after the recent informal summit between Prime Minister Modi and President Xi Jinping, India and China are discussing ways to form an oil buyers club with China, Japan and South Korea.

Oil prices recovered Wednesday after data showed a sharp drop in us inventories, even as production jumped toward 11 million, while President Trump again blamed OPEC for high oil prices.

"During the meeting, Minister Pradhan expressed his concern about rising crude oil prices and its negative impact on consumers across the world, particularly in India", the statement said.

Top exporter Saudi Arabia - which has so far led OPEC's efforts to withhold supplies - is also showing signs of raising production.

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"Our best guess is now that there will be no formal decision to change the production target, but a rather a type of agreement or understanding that compliance will be relaxed", said Johannes Benigni, chairman of JBC Energy Group in Singapore.

At 1030 GMT, the August ICE Brent crude futures contract was down 31 cents/b from Wednesday's settle, at $76.43/b, while the NYMEX July sweet light crude contract was up 16 cents at $66.80/b.

USA crude production has surged over the past eight years thanks to a shale boom, driven primarily by gains in the prolific Permian basin, which stretches across West Texas and eastern New Mexico.

"More oil from Opec+ is the base case", said Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB.

The country boosted production after the US lifted sanctions related to Iran's nuclear program in 2016, but analysts expect output to fall when the Trump administration's decision to withdraw from the deal takes full effect later this year.

The IEA report comes a day after OPEC warned of "considerable uncertainty as to world oil demand".

Because the cuts have gone deeper than intended, overall supply from the group would still be about 1 MMbpd below the pre-cuts levels even after the 1.8 MMbbl quota increase, the person said.

Oil prices rose Wednesday, turning positive after US government data showed a bigger weekly draw than expected in domestic crude inventories, along with unexpected declines in gasoline and distillate stocks.

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