Oil prices fall on mixed supply signals, concern over Russian output hike

Oil prices fell on Monday as investors weighed mixed signals on global supply and signs that Russia may exit coordinated production cuts by nearly two dozen nations.

Losses were limited by a tightening of global supplies, as output has fallen in Iran and Venezuela amid signs the United States will further toughen sanctions on those two OPEC producers.

U.S. West Texas Intermediate crude futures fell 61 cents, or 1%, $63.28 per barrel. WTI touched a five-month high at $64.79 last week.

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“I would expect oil to trade in a relatively tight band around $70 per for the time being,” said Virendra Chauhan, oil analyst at Energy Aspects in Singapore, pointing to differing signs from the United States and OPEC on future supply.

“Leading edge indicators on U.S. supply suggest activity levels are stepping up, which is supportive for strong production growth in the second half,” said Chauhan.

But at the same time, “murmurings from various ministers of the OPEC+ pact suggest supply from the group will not be ramped up pre-emptively as per last summer,” he said.

OPEC and its allies meet in June to decide whether to continue withholding supply. OPEC, Russia and other producers, are reducing output by 1.2 million barrels per day from Jan. 1 for six months.

OPEC’s de facto leader, Saudi Arabia, is considered keen to keep cutting, but sources within the group said it could raise output from July if disruptions continue elsewhere.

Meanwhile, Russia’s Finance Minister Anton Siluanov was quoted by the TASS news agency as saying on Saturday that Russia and OPEC may decide to boost production to fight for market share with the United States but this would push oil prices as low as $40 per barrel.

“The danger is to the downside as both contracts are still very overbought from a technical standpoint,” said Jeffrey Halley, senior market analyst at OANDA in Singapore.

On the bullish side, the head of Libya’s National Oil Corp warned on Friday that renewed fighting could wipe out crude production in the country.

Production has been also falling steeply in Venezuela due to U.S. sanctions. Iranian output is expected to suffer when the United States tightens sanctions on Tehran in May.

“We see a risk of a spike in oil prices by year-end,” said Bank of America Merrill Lynch, citing a weakening dollar and a surge in distillates demand due to rule changes for marine fuels.


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