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Oil extends advance as OPEC split deepens over production boost

Jun 12 2018 09:24
Tsuyoshi Inajima, Bloomberg

Oil extended gains near $66 a barrel as a divide between OPEC deepened over whether to ease production curbs and as investors await the details of a document signed by US President Donald Trump and North Korean leader Kim Jong Un.

Futures in New York rose 0.5% after a 0.6% increase on Monday. Saudi Arabia and Russia are trying to garner support for lifting output limits, while Iraq joined Venezuela and Iran in opposing the proposal.

Meanwhile, Trump and Kim pledged to work toward complete denuclearisation of the Korean peninsula under an agreement at the end of a historic summit aimed at easing tensions between the two longtime adversaries.

Oil has slumped after rising above $72 a barrel in late May as Saudi Arabia and Russia signalled they are ready to relax curbs to make up for potential supply disruptions from other producers.

Both the Saudis and Russians, which have already started to increase output, may propose a gradual increase when the Organisation of Petroleum Exporting Countries and its allies meet June 22 to June 23 in Vienna.

“As OPEC operates by consensus, if Saudi Arabia and Russia fail to persuade countries including Iraq and Iran, the upcoming OPEC meeting may not produce a clear message on a production boost,” Takayuki Nogami, chief economist at state-backed Japan Oil, Gas & Metals National, said by phone from Tokyo.

Still, “Saudi Arabia and Russia would likely increase production anyway.”

Mixed prices

West Texas Intermediate crude for July delivery rose as much as 42 cents to $66.52 a barrel on the New York Mercantile Exchange and traded at $66.44 at 3:51 pm in Tokyo. The contract added 36c to $66.10 on Monday.

Total volume traded was about 30% below the 100-day average.

Brent futures for August settlement climbed 28c to $76.74 a barrel on the London-based ICE Futures Europe exchange. Prices on Monday closed unchanged at $76.46. The global benchmark traded at a $10.37 premium to WTI for the same month.

Futures added 1.1% to 472.7 yuan per barrel on the Shanghai International Energy Exchange. The contract fell 0.2% on Monday.

The split among OPEC members appears to be deepening ahead of the key meeting in Vienna later this month. Iraq “rejects unilateral decisions made by some producers which do not consult with the rest,” Oil Minister Jabbar al-Luaibi said in a statement.

That came after Iran and Venezuela, countries that are subject to US sanctions, wrote to OPEC members urging them to unite against pressure from America to ease the curbs.

Weakening commitment

Still, Saudi Arabia and Russia are already showing signs of weakening commitment to production cuts under the agreement that took effect in January 2017. Saudi Arabia boosted daily oil output to 10.03 million a day in May, the highest level since October.

Russia also raised production to the highest in 14 months in the first week of June as some companies breached their caps, said a person with knowledge of the matter.

In other financial markets, Asian stocks meandered while the yen weakened as investors await the details of the US-North Korea agreement. Neither Trump nor Kim elaborated on the agreement’s contents as they signed the document, concluding their four-hour meeting on Tuesday in Singapore.

Yet a photo of the papers, held up by Trump, revealed some of the language, including a provision for North Korea to take steps to eliminate its nuclear arsenal.

Other oil-market news:

  • New leaks were discovered in a Nigerian pipeline that was halted on June 8, with no timing given for restart.
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commodities  |  markets  |  oil
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