The energy ministers from Russia and Saudi Arabia will discuss a potential relaxation of the global output cap agreed between OPEC and Moscow when they meet on June 22. That was enough today to end the rally in oil. West Texas Intermediate fell to $70.71, down 1.59%and Brent crude dropped to $78.79, a decline of 1.3%.
The energy ministers from the two countries will talk about easing production curbs as worries about falling production from Venezuela and possible disruptions in production from Iran with the reimposition of U.S. sanctions outweigh, for the moment, projections of rising production from U.S. oil share geologies. U.S. inventories expanded by 5.78 million barrels last week, according to the U.S. Energy Information Administration. Oil sector analyst had expected a 2-million barrel decline in inventories. Looking ahead, though, traders are expecting inventories to drop. Inventories at the key pipeline hub in Cushing, Oklahoma, are down 475,000 barrels in the period of May 18 to May 22, according to Genscape.
The two countries were part of a January 2017 agreement that cut global oil production by 1.8 million barrels a day. Until recently the two countries sounded like they were willing to extend these cuts when OPEC, Russia, and other producers meet in Vienna on June 22.
Now, Russia’s Vagit Alekperov, head of Lukoil, Russia’s second largest oil producers, is sounding a somewhat different note: Russian producers should be allowed to increase their output, he said today. The deal should remain, he added, but should be made more flexible.