Oil dives on hints of OPEC supply boost
Saudi minister says no decision yet, but signal roils markets
Oil prices fall the most in 11 months — dropping below $70 a barrel for the first time since May 8 — as Saudi Arabia says it expects OPEC to boost supplies later this year, easing restraints intact since early 2017.
Oil prices fell the most in 11 months in New York as Saudi Arabia said it expects OPEC and its partners to boost supplies later this year, easing restraints intact since early 2017.
U.S. futures dove 4 percent, the biggest drop since July 5, after Saudi Arabia Energy Minister Khalid Al-Falih said the supply caps may be scaled back, though he added that no decision has been made. The $2.83 decline pushed the price below $70 at the close of trading for the first time since May 8.
The potential for an OPEC policy change, following President Donald Trump’s tweet complaining about high prices, scrambled the outlook for oil markets and undercut the stock prices of producers. The S&P 500 Energy index dropped 2.7 percent.
“We’re starting to see growing concerns that producers could cut back on their output cuts,” said Gene McGillian, market research manager at Tradition Energy. “Taking that into consideration along with record U.S. production levels, it’s triggered a nice amount of profit taking.”
Explorers in the U.S. shale patch, meanwhile, were seen resuming their expansion plans this week as they continue to find a home for their crude around the world. U.S. working oil rigs rose by 15 this week to 859, the highest level since March 2015 and the biggest weekly boost since February, according to data from Baker Hughes.
Despite the possibility of new supplies coming on the market and oil prices halting their recent climb, U.S. production should continue to surge, said Jamie Webster, senior director at Boston Consulting Group’s Center for Energy Impact in Washington. Many U.S. oil producers have signed contracts, known as hedge, to supply oil at healthy prices.
“The U.S. growth still has a lot of running room,” Webster said.
The Saudi oil minister made his pronouncement on the supply cuts at a meeting in St. Petersburg with his Russia counterpart, Alexander Novak, who echoed the comments. The two ministers plan to meet at least twice more before an OPEC gathering in Vienna next month, the Saudi minister said.
Oil has traded near a 3 ½-year high on concern about supply disruptions from Venezuela and Iran. The rally has sparked wor-
ries that demand may falter, and the Organization of the Petroleum Exporting Countries and its allies appear to be reacting to that idea with the first offer to boost output since January 2017.
Oil has climbed in recent weeks on concerns that supplies could grow short as new U.S. sanctions take hundreds of thousands of barrels of Iranian oil off the market and production in Venezuela, mired in a political and economic crisis, continues to slide.
“The prices were reflecting fears of disruption rather than actual disruptions,” said Roger Diwan, IHS Markit vice president of financial services. “This announcement (by Saudi and Russian oil ministers) removes that fear.”
Crude settled at $67.88 a barrel Friday at the New York Mercantile Exchange.
Brent crude, the international benchmark, fell $2.35 to $76.44 a barrel in London, contributing to the first weekly drop in seven weeks.
Policymakers and economists had begun to raise concerns that rising energy prices would begin to squeeze consumers and slow economic growth. Heading into the Memorial Day weekend, gasoline prices were averaging nearly $3 a gallon nationally, the highest in four years.