Oil prices slip on expectations of rising OPEC, Russian supplies

WTI Crude Oil

Oil prices climbed above $80 last month after the U.S. withdrew from the nuclear deal with Iran.

U.S. West Texas Intermediate crude for August delivery, the new front month, traded up 5 cents at $65.76, after earlier trading at a low of $64.34. But, some OPEC members don't want to increase the output since it would put pressure on Oil prices which have already been declining recently, as we mentioned above.

On the other side, there are OPEC members who would like the price to stay just where it is because they have no spare production capacity and would gain no benefit from any increase in output.

"There was a time when oil producing countries were playing a lead role".

The production ceilings have achieved their objective of wiping out excess inventories generated by the 2014 attempt to limit the development of the USA shale oil sector by flooding the market with oil.

For most of the others it would make more sense to stick to the restrictions and sell their limited supply at a higher price.

Two OPEC sources told Reuters that even Saudi Arabia's Gulf allies Kuwait and Oman were against big, immediate increases in output.

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Those announcements show where Opec may be leaning, Roberts said, but cartel confabs are complex. We know how these OPEC meetings go - there's no trust between the members.

In April-May, oil prices reached their four-year maximum.

Given the Saudi's raised output in May, it may have appeared that the Saudis was responding to Trump's tweet. The renewal of Iranian sanctions threaten to disrupt the country's exports later this year and Venezuela's production is also under threat as its economic woes continue. Therefore, the countries of the OPEC + format, including Russian Federation, consider prices of $50-60 per barrel more acceptable, with a smaller amplitude and more predictable. Thus, there are limits to how much extra oil the cartel can be called on to supply.

EIA projects that US crude oil production will average 10.8 million barrels per day for full-year 2018, up from 9.4 million barrels per day (bpd) in 2017, and will average 11.8 million bpd in 2019.

Rob Thummel, managing director at asset management firm Tortoise said he "would recommend a small increase in production". "OPEC has engaged in open and transparent dialogue with a broad range of stakeholders, an approach that I wholeheartedly support and I believe is beneficial to all parties", he said. China imports about 365,000 barrels a day of USA crude.

Roberts said the $4 a gallon on a retail basis "is a psychological point people keep in mind".

The market is contending with exactly how much output will change. EIA expects oil demand to grow by 1.4 million barrels/day and non-OPEC supply will grow by 2 million barrels/day. A pullback below $70 per barrel is possible, but the market participants are agree on it. If there's a lack of consensus about upping output, that could be a bullish sign and push Brent prices to average around $80 to $85 for the year, above current levels. "China will not just swallow U.S. tariffs", said Driscoll. A stronger greenback weighs on oil since it's denominated in dollars.

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