Yesterday, Russia sent oil prices tumbling by saying that it might be time for OPEC and its allies (including Russia) to revisit current production cuts.
Today, it’s Saudi Arabia. “I think in the near future there will be time to release supply,” said Saudi Energy Minister Khalid Al-Falih at the St. Petersburg International Economic Forum in Russia. When OPEC, Russia and other major producers meet in June “we will do what is necessary” to reassure consumers, the minister said.
Oil markets today saw that as a signal that OPEC and Russia are likely to gradually increase oil output in the second half of the year.
That’s a 180-degree turn from just a month ago when these producers said they were determined to keep supply tight in order to boost prices. The lower end of the potential increase, backed by Gulf producers including Saudi Arabia, would add just 300,000 barrels a day to the market. The more generous option favored by Russia would deliver an additional 700,000 to 800,000 barrels a day.
My interpretation is that OPEC and Russia want to reassure oil markets and oil consumers that prices aren’t headed above $80 a barrel.
U.S. benchmark West Texas Intermediate fell to close down 4.41% today at $67.59. The international Brent benchmark dropped 3.2% to $76.27. Today’s market action left the spread between West Texas Intermediate and Brent at $8.68 a barrel, an extraordinarily large spread that reflects worries about supply disruptions in the Middle East that would drive the price of Brent higher.
