By Christopher Alessi

LONDON--Oil lost traction Wednesday morning on reports OPEC could ramp up crude production, even as prices continued to hover near 3 1/2 -year highs.

Brent crude, the global benchmark, was down 0.8% to $78.95 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.6% at $71.77 a barrel.

The Organization of the Petroleum Exporting Countries could decide to raise crude output at its next official meeting in June amid risks to Iranian and Venezuelan supply, Reuters reported late Tuesday.

OPEC and 10 producers outside the cartel, including Russia, have been holding back crude output by around 1.8 million barrels a day since the start of last year, as part of a coordinated agreement to rein in a global supply glut that had weighed on prices since late 2014.

Crude prices have risen close to 40% since the agreement took hold, while the physical oil market has continued to tighten.

OPEC's reported decision to consider production increases comes amid mounting geopolitical risks to supply from two of its members: Iran and Venezuela.

"The existing supply outages in Venezuela and the risk of such outages in Iran...have already resulted in a noticeable tightening of oil supply and a significant rise in prices," according to analysts at Commerzbank.

President Donald Trump earlier this month pulled the U.S. out of a 2015 international agreement to curb Iran's nuclear program. The move sets the stage for the reimposition of U.S. economic sanctions on Iran that are expected to hinder its oil exports.

Venezuela--already experiencing oil supply outages amid an economic crisis and international sanctions--on Sunday re-elected its far-left president, Nicolás Maduro, in a race deemed illegitimate by the opposition and many foreign governments.

Mr. Maduro's victory prompted the U.S. earlier this week to broaden a ban on Americans buying Venezuelan debt, potentially making it harder for the country to get much-needed financing for its ailing oil industry.

OPEC had "previously said it would not respond to short-term price spikes--but the fact is oil supplies are tightening at an alarming rate, " according to Stephen Brennock, an analyst at brokerage PVM Oil Associates Ltd. "Throw in concerns that the high-price environment is undermining oil demand and the case for maintaining supply cuts is getting weaker by the day," he said.

OPEC and its allies are set to meet in Vienna on June 22.

Among refined products Tuesday, Nymex reformulated gasoline blend stock--the benchmark gasoline contract--was up 0.6% to $2.2 a gallon. ICE gas oil, a benchmark for diesel, fuel, changed hands at $693.25 a metric ton, down 1.3% from the previous settlement.

Write to Christopher Alessi at christopher.alessi@wsj.com

(END) Dow Jones Newswires

May 23, 2018 06:52 ET (10:52 GMT)

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