Crude Oil Prices Slip By

© Reuters.

By Geoffrey Smith — Crude oil prices slipped on Friday, following a broader risk-off move in equities, with news of a further rise in Iranian output adding to reasons to lock in profits at the end of a strong month.

By 10:45 AM ET (1445 GMT) futures were down 2.5% at $63.38 a barrel, while the global benchmark was down 2.2% at $66.59 a barrel.

U.S. were down 2.0% at $2.0619 a gallon.

As of next week, Saudi Arabia will start to unwind the voluntary 1 million barrel a day output cut it put in place in February, confident that reviving world demand will absorb the extra barrels. At the same time, the rest of the OPEC+ bloc will also open their taps a little wider, as part of a plan to return another 1 million b/d of production by the end of the second quarter.  

Reuters reported earlier in a monthly survey that Iranian crude output had risen another 200,000 barrels a day on average in April, offsetting involuntary production shortfalls at other OPEC members such as Libya in the course of the month. The return of Iranian crude to the world market is gathering speed as the pressure from Trump-era sanctions on the Islamic Republic weakens. Iran is free to increase its output because it isn’t bound by the so-called OPEC+ pact on withholding supply from the market. 

Most of the supply increase is already factored in to prices, and the market will finish this week in positive territory in any case, after signs that the U.S. economy is recovering – if anything – faster than originally forecast. Moreover, the lingering aversion to public transport in the post-Covid world is leading to a disproportionate increase in gasoline demand in many countries as they emerge from lockdown and workers return to the office.

“The decision by OPEC+ to keep their 2 million bpd oil supply increase seems justified and should not depress prices,” said Bjornar Tonhaugen, senior oil market analyst at consultants Rystad Energy in emailed comments.

He argued that the chief threat to the trajectory of global demand – the spiraling Covid-19 crisis in India – should easily be outweighed by a gradual end to the pandemic elsewhere.

“In the worst case, India can lose half of its 4.8 million b/d of oil consumption temporarily,” Tonhaugen said, also noting the possibility of a slow rebound in demand on the subcontinent. “But the Chinese and U.S. oil demand recovery in the next 3 months alone will be above 1 million b/d and will net the India demand loss out.”

He also argued that the rest of the world could add 3 million b/d to overall demand by the end of August. There are signs that Europe, at least, is turning the corner. Data released earlier Friday showed that the Eurozone fell back into recession in the first quarter, but France said it intended to lift all Covid-19 restrictions by the end of June, while Germany’s vaccination campaign has ramped up dramatically, with over 1 million people vaccinated on Thursday.

Baker Hughes’ data and the Commodity Futures Trading Commission’s numbers on positioning will round off the week later.

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