Why OPEC reluctant to push oil prices too high?

12 June, 2018, 06:10 | Author: Regina Silva
  • Why OPEC reluctant to push oil prices too high?

West Texas Intermediate for delivery next month declined US$0.21 to settle at US$65.74 per barrel on the New York Mercantile Exchange.

Oil prices fell on Friday as weakening demand in China and surging USA output weighed on markets despite supply woes in Venezuela and Iran on top of OPECs production cuts.

JP Morgan cut its 2018 crude forecast for WTI by $3 to $62.20 a barrel, traders said. The bank said geopolitical tensions and lingering risks of supply disruptions may push prices higher during the second half 2018, it expects prices will head lower late in the year, and remain capped in 2019.

"What matters to us is that there is a balance between supply and demand to ensure the stability of the oil markets", he is quoted to have said.

The futures contracts dipped after the forecast was issued, and then pared losses.

The media reported with reference to sources that the Venezuelan state oil company PDVSA is nearly a month behind the plan of oil supplies to its customers.

Analysts expect higher USA output to offset supply curbs by the Organization of the Petroleum Exporting Countries, which have been in place for 18 months and have pushed up prices significantly over the a year ago.

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That implies that US crude output, which is already at a record-high of 10.8 million barrels per day (bpd), will also rise further.

Russian news agency Interfax said on Saturday that the country's production had surpassed its target, hitting 11.1 million bpd in early June.

US investment bank Jefferies said the crude market is tight and spare capacity could dwindle to 2 percent of demand in the second half of 2018, its lowest level since at least 1984.

PDVSA has notified customers in recent days that they must agree to load crude in Venezuela's open waters rather than its ports to avoid a possible declaration of force majeure that would temporarily interrupt some of its supply contracts.

OPEC member Venezuela, threatened with USA sanctions in the midst of an economic crisis, is almost a month behind delivering crude to customers from its main export terminals, according to shipping data.

More generally, Brent has been pushed up by the voluntary production cuts put in place a year ago, led by the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation. The group is set to meet June 22-23 in Vienna and decide how to move forward with its supply curb policy against the backdrop of tumbling Venezuelan output and looming sanctions against Iran, the third-largest OPEC producer.

"I think it is going to be very choppy", he said.

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