TOKYO/LONDON (Reuters) – Oil prices halted their rally on Monday with Brent futures falling below $71 per barrel on signals that Russia may exit production cuts.
FILE PHOTO: A drilling rig of Austria’s oil and gas group OMV is seen at their exploratory drilling site near Maustrenk, Austria October 9, 2018. REUTERS/Leonhard Foeger/File Photo
Losses were limited by a tightening of global supplies, as output has fallen in Iran and Venezuela amid signs the United States will further toughen sanctions on those two OPEC producers.
Brent crude futures were at $70.95 a barrel at 1050 GMT, down 60 cents, or 0.85 percent, having hit their highest since Nov. 12 on Friday at $71.87.
U.S. West Texas Intermediate crude futures were at $63.30 per barrel, down 59 cents or 0.93 percent.
“I would expect oil to trade in a relatively tight band around $70 for the time being,” said Virendra Chauhan, oil analyst at Energy Aspects in Singapore, pointing to differing signs from the United States and OPEC on future supply.
“Leading edge indicators on U.S. supply suggest activity levels are stepping up, which is supportive for strong production growth in the second half,” Chauhan said.
But at the same time, “murmurings from various ministers of the OPEC+ pact suggest supply from the group will not be ramped up pre-emptively as per last summer,” he said.
The Organization of the Petroleum Exporting Countries and its allies meet in June to decide whether to continue withholding supply. OPEC, Russia and other producers are reducing output by 1.2 million barrels per day from Jan. 1 for six months.
OPEC’s de facto leader, Saudi Arabia, is considered keen to keep cutting, but sources within the group said it could raise output from July if disruptions continue elsewhere.
Russian Finance Minister Anton Siluanov said over the weekend that Russia and OPEC may decide to boost production to fight for market share with the United States, but this would push oil as low as $40 per barrel.
U.S. energy companies last week increased the number of oil rigs operating for a second week in a row.
(GRAPHIC: U.S. Rig count – tmsnrt.rs/2X8Myf7)
On the bullish side, the head of Libya’s National Oil Corp warned on Friday that renewed fighting could wipe out crude production in the country.
Production has been also falling steeply in Venezuela due to U.S. sanctions. Iranian output is expected to suffer when
the United States tightens sanctions on Tehran in May.
“We see a risk of a spike in oil prices by year-end,” said Bank of America Merrill Lynch, citing a weakening dollar and a surge in distillates demand due to rule changes for marine fuels.
Editing by Dale Hudson