Oil Extends Decline as Saudi Arabia, Russia Signal Output Boost

Virginia Carson
May 31, 2018

Having erased close to 6 per cent of the gains in the last three days, the benchmark Brent was trading at close to $75 a barrel on Monday after hitting a three-and-a-half-year high in May.

Following concerns of possible crude oil supply shortfalls Into the market, high level talks is now going on among key members of Organization of Petroleum Exporting Countries (OPEC), to agree on production hikes as the organisation meets in June.

OPEC has been monitoring OECD inventories closely, and not just because its target in the cuts was the OECD inventory five-year average. Broken rising 55SMA (67.08) so far capped upside attempts, but the initial signal of stronger recovery could be expected on a bullish close today, which could risk corrective upticks towards sideways-moving 30SMA ($69.50), before fresh push lower. The duty on crude palm oil was increased to 44% from 30% and on refined palm oil to 54% from 40%.

But the oil market is now in danger of overheating amid geopolitical tension, and traders are keenly focused on how much oil OPEC agrees to restore next month in Vienna.

Oil pumping facilities are seen at Venezuela's western Maracaibo lake in Venezuela, November 5, 2007. A sell-off in emerging market currencies, not least Turkey, together with political developments in Italy and Spain also helped give gold a boost. Without compensating supply from other members, this number looks likely to expand as the USA reimposes sanctions on Iran and the collapse of Venezuela's oil industry worsens.

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The sources declined to be named due to company policies. Although this disruption is viewed as temporary, the stagnation in Libya's oil supply at 1mpd over the previous year, raises questions over the stability and growth in Libya's oil output.

OPEC and non-OPEC countries partaking in the production cut deal were supposed to decide on extending the cuts until the end of 2018, but pressure has been on the rise by consumers, especially the United States, for easing production restrictions and manage price hikes.

"Rising oil prices impact us directly and definitely puts pressure on profit margins", Dabur chief financial officer Lalit Malik said.

"There's more concern on the Brent side that supply losses from Iran are harder to be made up", Flynn said.

In the past, the increase in prices of this precious commodity was going up due to problems of demand, and the demand was fuelled by large economies such as China, and the market could not really deliver.

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While issues related to refining and distribution of new shale supply could get resolved in the medium term with new investments in the sector, over the short term supply from the United States could be constrained.

There is therefore no doubt that Zimbabwe with a new administration working so hard to improve the country's economic fortunes, is being negatively impacted by this 50 percent price hike of oil in the past six months. More importantly, the success of ARAMCO IPO also depends on higher oil prices and thus might push Saudi Arabia to keep oil prices elevated.

A lot of these companies got highly leveraged in the pre-2014 oil price boom.

The Saudis have an opportunity with the July OSPs, likely to be released next week, to show they are serious about two issues now dominating crude oil markets.

"Nothing ever moves in a straight line, but the broader oil market is perhaps not prepared for what will happen to oil prices over the next couple of years", they concluded. If we read between the lines or Mr Trumps tweets in this case, the United States establishment appears to be comfortable with a price in the ballpark of $70 a barrel.

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"The market has not appreciated yet the degree and scope of these changes", Joswick said.

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