Crude oil prices drop on imminent OPEC output rise

Crude oil prices dropped on Friday as a looming rise in Middle East production may drag on the stronger markets seen in April, although a weakening dollar and the falling US production are still offering support.

International benchmark Brent crude futures were trading at US$47.69 per barrel at 0101 GMT, down almost half a dollar and a percentage point from their last close.U.S. West Texas Intermediate (WTI) crude futures were down 19 cents at 45.46 a barrel. Traders said that both contracts remained near 2016 highs of US$48.19 and US$46.14 per barrel respectively, and WTI’s smaller fall was a result of declining US crude output.

Despite the drops on Friday’s trading figures, Brent and WTI are up almost a third from April troughs and are over 75% above their 2016 lows, lifted by falling output and a weaker dollar, which has fallen almost 6% against a basket of other leading currencies this year. That makes dollar-traded oil cheaper to buy for countries using other currencies at home, potentially spurring demand.

ANZ Bank notes that movements in the currency markets largely affect commodity prices. Also, another drop in the US oil rig count points to more output weaknesses, he said.

But Deutsche Bank said that a looming rise in production by members of the Organization of the Petroleum Exporting Countries (OPEC) could cap recent oil price rises, with climbing Iranian output and following outages in Iraq, Nigeria and the United Arab Emirates. In a note to their clients, the bank said that the rally may pause and that a continuous rise in OPEC output may be very near.

According to Deutsche, maintenance at fields in the UAE is scheduled to end this month, which implies a rise from current production of 2.73 million barrels per day (bpd) to the previous 2.91 million bpd production rate in May.

For 2017, the bank said it expected to be around 33.1 million bpd, “with upside risks originating from Libya and Saudi Arabia, and downside risks from unplanned outages and spending cuts in Iraq”.

Source: Reuters