OPEC sees ‘considerable uncertainty’ in oil market

Irving Hamilton
June 12, 2018

Brent crude futures LCOc1 , the worldwide benchmark for oil prices, were at $76.50 per barrel at 0215 GMT, up 4 cents from their last close.

Oil prices ticked up Tuesday morning ahead of OPEC's monthly market report and after President Donald Trump's landmark meeting with North Korean leader Kim Jong Un.

Going into next year, the bank said "oil fundamentals are expected to weaken in 2019 on the back of stronger than expected non-OPEC supply but also potential release of barrels from OPEC as the joint accord between OPEC and non-OPEC is unlikely to stay in place".

A day before US President Trump pulled out of the Iran nuclear deal, a senior official of the Trump Administration phoned Saudi Arabia to ask it to help keep oil prices stable should the US decision on Iran disrupt oil supply.

Drawdowns "in crude oil inventories, healthy oil demand and geo-political developments have supported this rising trend", OPEC said.

"Markets are braced for the most fractious conference as OPEC members look fundamentally divided", said Phillip Futures analyst Benjamin Lu.

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However, analysts expect surging US output to start offsetting efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to withhold production, which have been in place since 2017 and in the first half of this year have pushed up prices significantly. This is 143,000 bpd above the country's quota under the OPEC+ production cut deal, and only about 100,000 bpd below the record-breaking production rate in November 2016, which Russian Federation took as basis for its cuts.

It said on Saturday that Russia's oil output had risen to 11.1 million bpd in early June, up from slightly less than 11 million bpd for most of May and above its target output of under 11 million bpd.

In the United States, the number of new rigs drilling for oil rose by one last week to 862, its highest since March 2015, data from energy services company Baker Hughes showed.

Riyadh pledged to pump no more than 10.058 million barrels a day under OPEC's output-cuts agreement with Russian Federation and other allies outside the group.

We continue to expect a two-sided trade as investors prepare for the OPEC meeting in Vienna on June 22.

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