Oil Drops As Saudi-Russia Output Plan Rattles Investors

Crude Spills on Saudi's Proposed Increase Short Term Top Likely

Crude Spills on Saudi's Proposed Increase Short Term Top Likely

U.S. West Texas Intermediate (WTI) crude CLc1 was down $1.11, or 1.64 percent, at $66.77 a barrel, sitting around its lowest since April 17.

Falling stocks and a stronger US dollar index also weighed on prices.

Oil earlier in May rose to a 3½-year high after US President Donald Trump made a decision to renew sanctions on Iran and as plunging Venezuelan output fuelled concerns over disruptions.

"The stricter regulation on the fuels used by the shipping industry will result in booming demand for middle distillates that would boost crude oil demand by additional 1.5 million bpd, potentially sending oil prices to as high as $90 a barrel in 2020", Morgan Stanley said last week.

USA oil prices extended losses on Tuesday amid expectations that Saudi Arabia and Russian Federation could pump more crude to compensate for potential supply shortfalls.

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After spurting to a new three-year high last week, the price of oil has just tumbled.

While Russia and OPEC benefit from higher oil prices, up nearly 20 percent since the end of a year ago, their voluntary output cuts have opened the door to other producers, such as the US shale sector, to ramp up production and gain market share. The joints efforts managed to buoy the oil prices into interstellar prices.

To be certain of this, Saudi Arabia keeps advocating for the reduction of oil production from the Organisation of Petroleum Exporting Countries (OPEC), which for the first time, have been really effective through various agreements signed among the OPEC member states.

China has also raised concerns about whether enough oil is being pumped, according to a Saudi statement issued after Energy Minister Falih called China's energy chief on Friday to discuss cooperation between their countries and to review the oil market.

Traders will have to wait until Thursday to see the latest data from the Energy Information Administration on US petroleum supplies, which will be released a day later than usual because of Monday's holiday.

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The analyst said such a scenario remained "entirely possible".

Next month's meeting of the Organization of the Petroleum Exporting Countries (OPEC) is being touted as key to the outlook for crude oil prices, but a strong indication of what's likely will come next week.

The number of rigs operating in US oil fields rose by 15 to a total of 859 rigs last week, notching the highest level since March 2015, oilfield service firm Baker Hughes said in its weekly report on Friday. Further, since the election win of President Nicolas Maduro, the risk of U.S. imposing sanctions on Venezuela's oil industry have risen and if imposed could lead to further supply disruptions.

OPEC, led by Saudi Arabia, had largely dictated the oil price in the past. In addition, USA oil production is ramping up quite steadily.

API, EIA, US oil rig count next of relevance later in the week.

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