August West Texas Intermediate crude oil futures are in a position to close higher for the week as investors prepare for next week’s OPEC meeting in Vienna on June 22-23. Investors shouldn’t read into this week’s modest gain because the strength was likely generated by short-covering and position-squaring. The relatively low volume over the past two weeks suggests that the major players have taken to the sidelines due to the uncertain outcome of negotiations at the OPEC meeting.
Heading into next week’s meeting, attendees are going to have to address rising U.S. output and uncertainty over the outlook for supply because of economic turmoil in Venezuela and the upcoming sanctions against Iran. However, given the recent limited gains, it looks as if investors have priced in the possibility OPEC and other major producers will agree to higher output.
One major concern is that oil giants Saudi Arabia and Russia are going to push for increased production at next week’s OPEC meeting.
The notion that Saudi Arabia and Russia will push for more output was supported by Russian Energy Minister Alexander Novak who said after talks with Saudi Energy Minister Khalid al-Falih in Moscow that both nations “in principle” supported the gradual exit from the deal that was aimed at trimming the global supply and stabilizing prices.
“We in general support this … but specifics we will discuss with the ministers in a week,” Novak said, adding that one option would involve gradually hiking output by 1.5 million bpd, possibly starting from July 1.
Saudi Arabia’s al-Falih did not offer specific guidance on what any deal in Vienna could look like. But he said: “We will see where we go, but I think we’ll come to an agreement that satisfies, most importantly, the market.”
After wallowing slightly above its near-term low earlier in the week, crude oil moved higher after U.S. government data showed a bigger weekly draw than expected in domestic crude inventories.
According to the U.S. Energy Information Administration, crude inventories fell by 4.1 million barrels in the week-ending June 8. Traders were expecting a decrease of 2.7 million barrels. Total crude oil supply is now at 432.4 million barrels.
Gasoline inventories dropped 2.3 million barrels, with the average daily production at 10.5 million barrels, versus a huge 4.6 million…