Russia's Novak: return to Oct'16 oil output levels possible

Marcus Newton
May 28, 2018

Crude oil prices have surged since April on the back of tightening crude oil market due to Organization of Petroleum Exporting Countries (OPEC) oil production cuts, drop in Venezuela crude output, geo-political tensions in the Middle-East and economic sanctions imposed by United States on Iran, which is expected to impact the country's oil exports.

The abrupt reversal interrupted a surge in the American benchmark from less than $50 a barrel last fall to over $70, largely because of the collapse of Venezuelan oil production, the withdrawal of the United States from the Iran nuclear deal and stronger global demand for energy. The news should have pressured oil prices, but the comments weakened the USA dollar, which supported crude, Commerzbank strategist Carsten Fritsch said.

"If prices get above there, that will further intensify and increase the likelihood that OPEC will do something.It's going to be very hard to overcome this level on a sustainable basis before the OPEC meeting".

The Organization of the Petroleum Exporting Countries may decide in June to lift output to make up for reduced supply from crisis-hit Venezuela and Iran, which was stung by the USA decision to withdraw from the nuclear arms control deal, OPEC and oil industry sources told Reuters.

West Texas Intermediate fell $2.83, or 4%, Friday to $67.88.

In 2016, OPEC and several oil producing countries outside the cartel agreed to cut oil production by a total of 1.8 million barrels per day in an effort to stabilize global oil prices.

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OPEC has been cutting crude output by 1.8 million bpd to prop up oil prices.

The re-balance is sure to be the focus of a tense meeting between OPEC and its partners in the production cuts when they meet in Vienna next month.

Under current conditions of improving fundamentals of supply and demand, met with a decline in OPEC production and a potential U.S. embargo, oil prices experienced a 75 percent rise since last summer's rate.

With Iran, one of OPEC's top producers, facing tough USA sanctions pressure and Venezuelan output at historic lows, a source speaking to Argus said extraordinary action may be necessary to calm the hot oil market.

SBI Capital Markets said in a recent report that rising crude oil prices may worsen the country's Current Account Deficit (CAD) to 2.5 per cent in the present financial year from an estimated 1.9 per cent in the last financial year.

Meanwhile, refinery runs fell 7,000 bpd to 16.63 million bpd, a full 3.8 percent below the same week previous year, according to the EIA data.

Other reports by MaliBehiribAe

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