Oil looking oversold heading into latest OPEC meeting

Brent Crude Oil

Brent Crude Oil

By contrast, Saudi Arabia, the cartel's biggest producer and a fierce regional rival to Iran, could have the room to increase output more — and make more money — to make up for the shortfall in countries like Iran.

But Goldman Sachs analysts said in a Monday note that despite an expected increase in OPEC output, weaker emerging market demand and a burgeoning trade war between the U.S. and China, the oil market remains in deficit. A quota increase of that size shared among all members wouldn't deliver a commensurate boost in production because several countries, including Venezuela where economic crisis is slowly destroying the oil industry, are unable to raise output.

Energy firms were among the biggest losers as oil prices plunged ahead of a key OPEC meeting, where Saudi Arabia and Russian Federation are expected to lift a two-year-old production cap.

"Russia has been aggressively affirming itself by adding oil to market ahead of the upcoming meeting and is pushing for a significant output hike, Saudi Arabia is suggesting for a modest increase and others are in favour of the status quo", said Stephen Innes, head of Asia-Pacific trade at OANDA.

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In April-May, oil prices reached their four-year maximum.

"It is due to various circumstances in worldwide (oil) market and mainly the value of Indian Rupee has reduced in comparison to US Dollar, which has led to a surge in oil prices". The other, more immediate ones are the meeting of the OPEC cartel and the trade war between the United States and China. The WTI has fallen back from $72.83 to $64 partly as a result of market expectation that OPEC will increase the production in the second half of the year.

The market was expecting an increase of around 1-1.5 million barrels.

World oil demand in 2018 is forecast to grow by 1.65 mb/d, broadly unchanged from previous month's assessment, to stand at 98.85 mb/d.

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Meanwhile, Russia plans to propose the OPEC/non-OPEC allies next week that they reverse the group's production to the October 2016 levels - the baseline for the cuts of most pact participants when they had pumped as much oil as they could to blunt the cuts' impact later is putting pressure on crude oil prices.

"It's really a double whammy for Iran", Smith says, "from the perspective that because sanctions are being placed on them, they're not going to be able to export as much, because they probably won't be able to send crude into Europe".

The oil ministers of the OPEC cartel are arriving in Vienna to discuss this week whether to increase production of crude oil and help ease the price of global energy. In June, crude oil has been trading at about USD75-76 per barrel.

Tankers waiting to load more than 24 million barrels of crude, nearly as much as state producer PDVSA shipped in April, are sitting off the Opec member's main oil port.

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One OPEC source said the Saudi proposal of a 1.5-million-bpd increase was "just a tactic" aimed at persuading fellow members to compromise on a smaller rise of around 0.5-0.7 million bpd. "In this connection, OPEC countries will benefit from lowering prices and cooling the surge of the U.S. activity", Alexei Belogoriev said.

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