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Mixed Signals for Oil Cause Slight Losses for the Day

June 6, 2018 at 14:30 by Matt Jackson

Oil prices started brightly this morning, but have been pegged back in afternoon trading. Uncertainty over OPEC’s oil supply cut agreement, a request by the USA to Saudi Arabia to increase output, increased political tensions in Venezuela, and a decline in US crude stockpiles have all had their say on prices on Wednesday.

OPEC is seemingly unsure of whether it will continue to curb global oil supplies. Some reports claim that they will increase output in the coming months, while others claim that countries like Saudi Arabia still want to see higher barrel prices, are an indication that the group is currently uncertain which way to turn. The waters were muddied further, earlier this week, when it was announced that the USA had contacted Saudi Arabia and asked them to increase output by a million barrels a day.

While it does not have the same production levels as countries like Saudi Arabia and Russia, Venezuela is a significant player in the oil industry, because it holds the largest stock of oil of any country in the world. Political and financial concerns, culminating in the controversial reelection of President Maduro, have led to the very real possibility of sanctions being placed against the country by the USA and other global nations. These sanctions would restrict the sale of Venezuelan oil, which would reduce oil supply and push prices up. Venezuela isn’t the only oil producing nation that faces potential sanctions. After the USA pulled out of the nuclear deal with Iran, Trump has said that he will reimpose sanctions against them that will prevent countries from buying oil from Iran.

The American Petroleum Institute has said that US crude stockpile levels have dropped by 2 million barrels last week. This reduction in stockpiles would usually lead to a reduction in prices, but this move has been outweighed by geopolitical and future supply concerns.

WTI crude fell 0.43% to $65.24 while Brent crude slid 0.32% to $75.14. Analysts have said that they expect $80 to be a short-term ceiling, while the market awaits news of OPEC’s decision, which is likely to be announced after the June 22 meeting of OPEC nations and Russia.

If you have any questions and comments on commodities today, use the form below to reply.

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