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Potential Russia Supply Increase Causes Oil Drop

July 3, 2018 at 16:20 by Matt Jackson

The announcement that Russia has additional supply capacity that it could use to increase market stability has seen oil prices slip back further on Tuesday, following on from further drops on Monday.

There was seemingly some confusion over a phone call between US President, Donald Trump, and King Salman of Saudi Arabia over the weekend. Trump tweeted at the weekend that the Saudi official had agreed to increase the country’s supply to 2 million barrels per day, although officials quickly retreated from this statement, and said that Salman had actually only said that they could potentially increase to this level, but would only do so if market instability required it and if the country had the full backing of its OPEC allies. Iran also made a statement that any country agreeing to this kind of increase would be agreeing to walk away from the OPEC deal, suggesting that Saudi Arabia might struggle to get the backing of other OPEC nations.

Analysts expect OPEC nations to increase their supply in the coming months, following an arrangement the cartel made at the end of last month. The nations had previously agreed to curb supply of oil to the global market in order to increase prices of the commodity. The countries have been restricting supply even more than agreed. However, following concerns over supply from Iran and Venezuela, as well as Canada, who are not part of OPEC, the nations have agreed to meet their original targets. Analysts expect Saudi Arabia to increase its supply to around 10.8 million barrels per day in July.

Despite market expectations of a decline in US oil supply, there is also some speculation that the Strategic Petroleum Reserve would release some oil this week, with the potential increase in supply helping peg back oil prices.

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