Brent falls as investors grow wary of Opec commitment

Brent, US crude drop on expectations of higher Opec output to cover Iran, Venezuela supply

Brent crude prices fell yesterday, under pressure from a potential increase in Opec crude output to cool the market’s recent rally and cover any shortfalls in supply from Iran and Venezuela.

Brent crude futures were down 75 cents at $78.82 (Dh289) a barrel by 0940 GMT, while US crude fell 46 cents to $71.74 a barrel.

Oil prices have gained nearly 20 per cent so far this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by the Organisation of Petroleum Exporting Countries and partners including Russia.

The price has also been affected by rising geopolitical tensions that could dent global output just as demand is set to hit 100 million barrels per day in the final quarter of this year, according to the International Energy Agency.

In addition, the United States plans to reimpose sanctions on major oil producer Iran, while an economic crisis has decimated Venezuela’s crude output.

Sustained rise

Based on the prospect of a shortfall in supply relative to demand, investors had driven their bets on a sustained rise in the price of oil to record highs earlier this year.

But with so much uncertainty over how sanctions might affect Iranian supply, fund managers have cut their holdings of crude futures and options by more than 10 per cent in the last seven weeks to the lowest level this year.

“It does seem like any move above $80 attracts selling interest right now and that could potentially lead us to a period of consolidation, where I think $77.50 or even $75 might be in focus,” Saxo Bank senior manager Ole Hansen said. “We still have the unquantifiable impact of US sanctions against Iran.” Opec may decide to raise oil output as soon as June due to worries over Iranian and Venezuelan supply and after Washington raised concerns the oil rally was going too far, Opec and oil industry sources familiar with the discussions said.