Published: Tue, June 12, 2018
Business | By Kate Woods

Oil gains on Venezuela export cuts, OPEC production levels

Oil gains on Venezuela export cuts, OPEC production levels

Oil prices fell on Friday as weakening demand in China and surging United States output weighed on markets despite supply woes in Venezuela and Iran on top of OPECs production cuts. For the week, Brent fell 0.5 percent, while USA crude slipped 0.3 percent.

Contradicting conventional wisdom, J.P. Morgan says crude oil prices are heading for a downturn later this year and will sink even lower next year as supply and demand fundamentals weaken.

Money managers cut bullish ICE Brent crude oil bets by 13,810 net-long positions to 438,186, weekly ICE Futures Europe data on futures and options showed.

Adding to those expectations was a Bloomberg report on Tuesday that said the US government had quietly asked Saudi Arabia and some other OPEC producers to increase oil production by about 1 million barrels a day, offsetting a sharper-than-expected production drop from cartel constituents like Venezuela.

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The futures contracts dipped after the forecast was issued, and then pared losses.

Further weighing on prices has been rising US output, which hit another record last week at 10.8 million bpd.

May shipments were 39.05 million tonnes, or 9.2 million barrels per day (bpd).

Oil prices slipped on Monday, pulled down by rising Russian production and as US drilling activity rose to its highest in more than three years. Output dropped to 1.50 million bpd in April, the survey found, a new long-term low.

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Despite Friday's decline, Brent remains more than 15 percent above its level at the start of the year.

The increase in the Brent oil price followed reports late Tuesday that Venezuela state oil company PDVSA may have to declare force majeure-the legal clause that allows firms to walk away from contracts due to causes outside of their control-on some of their oil contracts. An economic crisis in Venezuela is curtailing the country's oil production, while a planned reinstatement of USA sanctions against Iran also is expected to impede production from OPEC's third-largest member.

More generally, Brent has been pushed up by the voluntary production cuts put in place a year ago, led by the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation.

Prices also rose when Mustapha Guitouni, Algeria's energy minister, said OPEC would focus on balancing the market rather than extending production restrictions at its next meeting on June 22.

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"We're going to be subject to incredible headline risk", New York-based hedge fund Again Capital LLC partner John Kilduff said.

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