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Oil Sees Slight Slip Amid Continued Supply Chaos

June 5, 2018 at 13:41 by Matt Jackson

Oil prices had started to gain some ground again on Tuesday, but these gains were short lived, as reports emerged that the USA has asked Saudi Arabia if they would be willing to increase their supply of the global commodity. Increasing US supply has also had some effect on prices. The market continues to wait for the OPEC meeting, which is scheduled to take place on June 22, where the primary point of discussion will be whether the oil producing nations should cut the curbs that they have currently imposed on their own supply levels.

Saudi Arabia and the rest of the OPEC nations, along with Russia, have been restricting supply of global oil, reducing their output by approximately 1.8 million barrels per day. However, following the imposition of sanctions against both Iran and Venezuela, by the USA, the oil market could lose 6 million barrels of oil supply per day, which would leave supply heavily restricted. As the market initially weighed up the potential of biting sanctions, the market saw significant price increases, with Brent crude trading over $80 per barrel as recently as last week.

However, OPEC is facing a dilemma. They curbed supply because a glut of oil led to prices dropping to unprecedented levels in 2017. They, along with Russia, agreed to cut supply so that prices would have a chance to recover. The deal has been extended twice and, earlier in the year, there had been strong overtones to suggest that the nations would actually agree to extend the deal beyond the end of 2018, when it is currently set to expire.

Trump has previously criticized OPEC, saying that they were artificially inflating prices. This criticism came hot on the heels of news that Saudi Arabia were targeting a barrel price of between $80 and $100. However, Trump has now approached Saudi Arabia and asked them to increase their output to help plug the Iranian and Venezuelan sized hole in the oil supply market.

OPEC must now decide whether to increase supply, and risk prices falling once again, or continuing to strangle production levels. Further production restrictions are likely only to serve President Trump, and truck drivers in Brazil have already staged protests over the rising cost of petrol, while other countries are also feeling the petrol price increase.

WTI crude had slipped 0.36% to $64.52, while Brent crude fell 1.3% to $74.31 at 14:00 GMT.

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