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Oil sinks as Russia and Saudi Arabia rethink output caps

Reuters logo Reuters 5/25/2018 Stephanie Kelly
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Oil prices fell more than $2 per barrel Friday as Saudi Arabia and Russia discussed easing supply curbs that have helped push crude prices to their highest since 2014.

U.S. West Texas Intermediate crude settled $2.83 lower at $67.88 a barrel, a 4 percent loss. After six weeks of gains, WTI lost about 5 percent for the week, its biggest loss since early February. 

Brent crude futures were down $2.42, or 3.1 percent, at $76.37 a barrel. The contract hit its highest since late 2014 at $80.50 last week. Brent is down about 3 percent this week, its largest weekly percentage loss since early April.

The energy ministers of Russia and Saudi Arabia met in St. Petersburg to review the terms of a global oil supply pact that has been in place for 17 months, ahead of a key OPEC meeting in Vienna next month.

The ministers, along with their counterpart from the United Arab Emirates, discussed an output increase of about 1 million barrels per day (bpd), sources told Reuters.

Russia's energy minister said oil ministers from OPEC states and non-OPEC countries participating in a deal to cut output would likely decide to gradually ease curbs at their meeting in Vienna next month.

"Different options will be put forward. But, it is likely that this will be a gradual easing," Alexander Novak said in comments published on the Russian energy ministry website on Friday.

Global crude inventories have fallen over the past year because of the OPEC-led cuts, which were boosted by a dramatic drop in Venezuelan production.

This comes even as U.S. crude production has risen. The United States in February produced 10.3 million bpd, a record.

The U.S. oil rig count rose by 15 to 859 in the week to May 25, the highest level since March 2015, General Electric Co's Baker Hughes energy services firm said.

Speaking in St. Petersburg, Saudi Energy Minister Khalid al-Falih said any easing of restrictions on pumping levels would be gradual to avoid a shock to the market.

The prospect of renewed sanctions on Iran after Trump pulled out of an international nuclear deal with Tehran has further boosted prices in recent weeks.

However, market participants should not read too much into Friday's sell-off due to thin volume ahead of the U.S. Memorial Day holiday weekend, said Derek Rollingson, portfolio manager of the ICON Energy Fund.

"It's the last Friday before a long weekend and the volume has a tendency to go down and with lower volume there's always a chance of higher volatility," Rollingson said.


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