OLD BRIDGE, N.J. (DTN) -- Oil futures nearest to delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange continued lower in early trade, giving back much of Monday’s contract gains, as speculation about an expected production increase tilts to the upside ahead of Friday’s meeting of the Organization of the Petroleum Exporting Countries in Vienna.
Traders said media reports from OPEC’s Economic Commission, which convened Monday in Vienna to discuss the upcoming supply meeting, could signal OPEC and non-OPEC members might lean toward a larger rather than smaller production boost when they convene Friday. The commission suggests additional oil supplies would easily be absorbed by the market because it expects a strong market outlook for the second half of 2018.
The strong OPEC market outlook concurs with a Monday report from Goldman Sachs, as reported by CNBC, predicting tight world oil supplies for the balance of 2018 and a likelihood that Brent crude oil prices could breach $82.50 bbl on reduced supplies from Iran and Venezuela. The Goldman story caused futures markets to rally Monday on the expectation of strong oil prices during the summer.
Output estimates vary wildly for Friday’s expected easing of ongoing OPEC production cuts, with OPEC leader Saudi Arabia reported to be considering numerous options including two staggered boosts of 500,000 bpd each, while non-OPEC leader Russia suggested a 1.5 million bpd boost, media reports say.
Contention at the meeting is expected to be spirited as OPEC members Venezuela and Iran plan to reject the easing of production cuts, arguing Saudi Arabia and Russia will be the main beneficiaries because of their sizeable spare production capacity. Meanwhile, Venezuela’s production is in a tailspin and Iranian exports are expected to be constrained later this year by U.S. sanctions.
Agreed to production cuts in 2016 of 1.8 million bpd by OPEC and 10 non-OPEC oil producers led by Russia are now in the second year of a two-year agreement. Strong compliance with the agreement joined by flagging Venezuelan crude production has successfully cut down a burgeoning global supply glut.
Traders will also position ahead of Tuesday’s American Petroleum Institute weekly supply report set for release at 4:30 PM ET, followed by weekly data from the Energy Information Administration. Additionally, the July NYMEX West Texas Intermediate futures contract expires Wednesday afternoon.
Near 9:00 AM ET, NYMEX July WTI futures were off 88 cents to $64.97 bbl, while the August contract fell 89 cents to $64.80 bbl. ICE August Brent declined 34 cents to $75.00 bbl, while the September contract slipped 42 cents to $74.52 bbl.
NYMEX July RBOB contracts were down a little over 2.0 cents gallon at $2.0346, while the July ULSD was down a little over a penny to $2.1203 gallon.
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