Oil Falls as Investors Weigh OPEC Deal, Trade Spat
June 25 2018 - 3:45PM
Dow Jones News
By Christopher Alessi and Amrith Ramkumar
Oil prices fell Monday in the wake of a weekend decision by OPEC
and its allies to begin ramping up production and the latest trade
barbs between the U.S. and China.
Light, sweet crude for August delivery fell 50 cents, or 0.7%,
to $68.08 a barrel on the New York Mercantile Exchange, coming off
its best day since November 2016 on Friday. Brent crude, the global
benchmark, declined 82 cents, or 1.1% to $74.73 a barrel.
U.S. crude prices erased their early Monday gains, falling
alongside other risk assets as investors weighed the latest
headlines suggesting an escalation of trade hostilities between the
U.S. and China. Some analysts worry that protectionist policies
will slow the global economy and weaken demand for materials
broadly.
The Organization of the Petroleum Exporting Countries -- de
facto led by Saudi Arabia -- and major non-OPEC oil producers such
as Russia on Saturday agreed to raise production by up to 1 million
barrels a day beginning next month, though the precise level of the
group's output rise remains unknown.
Over the past month, Saudi Arabia and Russia had been advocating
an output increase in an effort to cool steadily rising prices,
amid signs of shrinking global inventories and geopolitical risks
to supply. Bets on the size of the production increase have swung
the market, with prices retreating nearly 10% from their May
multiyear highs before surging on Friday as investors bet that the
increase would be less than anticipated, closer to 600,000 barrels
a day.
Ole Hansen, head of commodity strategy at Saxo Bank, said the
fresh agreement by OPEC and Russia had helped put a cap on Brent,
without causing it to fall too drastically. "They stabilized the
market from a price standpoint," he said.
Analysts have said more OPEC supply won't impact U.S. markets as
much as Brent-focused European and Asian markets, likely narrowing
the spread between U.S. and global prices and potentially making it
more challenging for U.S. exporters to sell abroad.
OPEC and 10 producers outside the oil-cartel -- including Russia
-- first agreed in late 2016 to cut crude output by around 1.8
million barrels a day, or 2% of global supply, in an effort to rein
in a supply glut that had weighed on prices since 2014. But as a
result of deeper cuts by countries such as Saudi Arabia and
production outages in other OPEC members, compliance with the deal
has exceeded the planned quotas, rising to around 150%.
On Saturday in Vienna, OPEC and Russia said they would like to
bring compliance down toward 100%. Saudi Arabia's oil minister,
Khalid al-Falih, said that the release of supply to the market
would be gradual, but that his country would start selling more oil
come July 1.
"With the Saudi oil minister indicating that the group's
production increase will be closer to 1 million barrels a day, oil
prices have started the week under pressure," said Giovanni
Staunovo, commodities analyst at UBS Wealth Management.
Among refined products, gasoline futures declined 1.90 cents, or
0.9%, to $2.0515 a gallon. Diesel futures dropped 2.50 cents, or
1.2%, to $2.1004 a gallon.
Write to Christopher Alessi at christopher.alessi@wsj.com and
Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
June 25, 2018 15:30 ET (19:30 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.