Global oil benchmark ends at 6-week low on expectations for OPEC output hike
Oil futures dropped sharply Friday, ending the week lower, with global benchmark Brent crude settling at a more-than-six-week low on expectations OPEC and its allies will agree next week to boost output.
August Brent crude LCOQ8, -3.27% the global benchmark, declined by $2.50, or 3.3%, to $73.44 a barrel on ICE Futures Europe. That’s the lowest settlement since May 2, and they suffered a loss of roughly 4% for the week, according to FactSet data.
July West Texas Intermediate crude CLN8, -3.05% the U.S. benchmark traded on the New York Mercantile Exchange, lost $1.83, or 2.7%, to settle at $65.06 a barrel, pulling back after a four-session climb. It saw its lowest finish since June 6 and lost about 1% for the week.
Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, is considering an output boost of 500,000 to 1 million barrels a day, while Russia is weighing a rise of as much as 1.5 million barrels a day, said commodity analysts led by Eugen Weinberg at Commerzbank, in a note. Major oil producers meet June 22 in Vienna.
Read: OPEC risks destroying its oil market success
The problem, however, is that several OPEC members, including Iran and Venezuela, are resisting output boosts that are intended to offset their own production falls, he said. News reports said the U.S. requested a 1-million-barrel-a-day output increase and tweets by President Donald Trump slamming OPEC for high oil prices could prove to be “additional stumbling blocks” and could lead to a production increase on the smaller side, he added.
Indeed, the “vast majority” of OPEC producers are arguing against relaxing the production curbs agreed by OPEC and major non-OPEC producers, said Helima Croft, head of commodity strategy at RBC Capital Markets, in a note. Most OPEC producers “are effectively tapped out,” she said, noting that while Saudi Arabia is in a much better position than most other sovereign producers, its own ambitious Vision 2030 economic plan could be put in danger by a sharp drop in prices.
As a result, Saudi Arabia and the OPEC leadership are likely to err on the side of caution and deliver a modest 500,000 barrel a day rise in production, while signaling they’re ready to quickly fill any serious supply gaps if needed, said Croft. At the same time, she said, it’s possible the meeting proves so contentious that Saudi Arabia and Russia are left to act on their own.
Meanwhile, data from oil-field services firm Baker Hughes BHGE, -3.10% revealed Friday that the number of active U.S. rigs drilling for oil, which offers a gauge of domestic production activity, rose by 1 to 863 this week. That modest rise marked a fourth straight weekly climb.
The Energy Information Administration reported Wednesday total domestic crude production climbed by 100,000 barrels a day to a weekly record of 10.9 million barrels a day. The EIA data also showed domestic crude stockpiles fell by 4.1 million barrels in the week ended June 8.
In other energy trade, July gasoline RBN8, -3.12% fell 3.2% to $2.023 a gallon, for a weekly loss of nearly 4.4%, while July heating oil HON8, -3.23% was off 3.3% to end at $2.087 a gallon—down 3.6% for the week.
July natural gas NGN18, +1.92% tacked on 1.9% to $3.022 per million British thermal units, for a weekly climb of 4.6%. Prices, based a most-active contract, haven’t settled above $3 since January, FactSet data show.
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