Oil slips further below US$80/barrel on talk Opec may lift output

Jeannie Matthews
May 26, 2018

More than a week after the state-owned oil firms ended a 19-day pre-Karnataka poll hiatus on revising fuel prices, petrol and diesel rates have touched record highs.

We examine China's current policy direction - now reinforced under a more empowered President Xi Jinping - and its wider implications for global commodity markets. In addition, market participants fear that the Organization of countries-exporters of oil (OPEC) can in June to increase production because of the risks associated with Venezuela and Iran.

Oil prices have gained almost 20 percent so far this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by the Organization of the Petroleum Exporting Countries and partners including Russian Federation.

"However, now that we are getting closer to $100/bbl the net impact of higher oil prices is again becoming a net negative", UBS economists said in a research note. Even without any further sanctions from the U.S., Venezuela has no money to maintain its oil production let alone increase it.

Indeed, Sinopec (600028.SS), Asia's largest refiner, will boost USA crude oil imports to an all-time high as China tries to reduce its trade deficit with the United States, two sources with knowledge of the matter said. As a result of all this, we got Brent at US$80, which is what some OPEC members wanted.

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The increase in hedging suggests that oil prices are flirting with a pain threshold for consumers, a potentially ominous sign for OPEC, which always keeps a watchful eye on demand growth.

But the ailing democrats seem to be grandstanding in a bid for support rather than acting on any concern for global fundamentals, and it's noteworthy that Schumer's conference came ahead of the busy summer driving season that starts with the U.S. Memorial Day holiday weekend.

Supply concerns have pushed crude to multi-year highs, with Brent last week breaking above US$80 a barrel for the first time since November 2014.

Silver continues to defy market's trend as the price continues to remain constant at $16 seeing only minor change across the day despite U.S. dollar gaining strength. Al-Falih, therefore, assured his Indian counterpart Dharmendra Pradhan, that OPEC will make an effort to "ensure availability of adequate supplies to offset any potential shortfalls". However, Russia's Energy Minister Novak declined to comment on the same, saying that all proposals will be discussed in June's Vienna meeting. Oil is still a buyers' market.

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