Published: Thu, May 31, 2018
Business | By Pearl Harrison

Oil prices are falling fast. Here's why

Oil prices are falling fast. Here's why

Next month's meeting of the Organization of the Petroleum Exporting Countries (OPEC) is being touted as key to the outlook for crude oil prices, but a strong indication of what's likely will come next week.

Opec is due to meet in Vienna on 22 June. Futures are headed for a fifth straight session of declines, the longest such stretch since February 9.

Prices of daily-use consumer products such as packaged snacks, detergents and cooking oils may increase by 4-7% after petrol and diesel prices rose to a record, companies said, anxious that the inflationary trend could adversely affect demand.

Initial talks are being led by the energy ministers of OPEC kingpin Saudi Arabia and Russian Federation at St. Petersburg this week along with their counterpart from the United Arab Emirates, which holds the OPEC presidency this year, the sources said.

Saudi Arabia and Russia's proposal to revive production signals supplies are now tight, and isn't a bearish development, Goldman analysts including Damien Courvalin wrote in a report. Venezuela has seen a reduction in output of 579,000 bpd overshooting its target production cut of only 95,000 bpd.

Meanwhile, market participants would also be waiting for the latest USA inventory data levels which is delayed by a week because of the Memorial Day holiday in the US. Total volume traded was about 109 per cent above the 100-day average.

US energy companies added 15 rigs looking for new oil in the week ending May 25, bringing the rig-count to 859, the highest level since 2015, in a strong indicator that American crude production will continue to rise.

Brent futures for July settlement dropped as much as $1.95 to $74.49 a barrel on the London-based ICE Futures Europe exchange and traded at $75.30 a barrel.

For three days, the price of North sea grades fell almost 5 dollars or 6.2%.

The decision to keep cutting or start ramping up needs to be unanimous, UAE's Oil Minister Suhail al-Mazrouei told media this week. In the event that other countries fall in line with the U.S. and impose sanctions on Iran, supply from Iran could fall by as much as 1m/bpd.

"The market has not appreciated yet the degree and scope of these changes", Joswick said.

"Some 10 percent is probably the maximum level", he said.

This past week, however, it was not crude oil and products that provided the gains.

Oilfield services firm Baker Hughes released data on Friday showing the rig count in North America hit its highest level of the year last week.

Hedge funds trimmed their net-long positions - the difference between bets on a price increase and wagers on a drop - in Brent crude by the most in nearly a year.

"The stricter regulation on the fuels used by the shipping industry will result in booming demand for middle distillates that would boost crude oil demand by additional 1.5 million bpd, potentially sending oil prices to as high as $90 a barrel in 2020", Morgan Stanley said last week.

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