Benchmark ICE Brent front-month crude futures ended at $73.44/barrel on June 15, slumped nearly 8% from their 42-month high of $79.80, notched on May 23.
NYMEX WTI plummeted around 10% from its 41-month peak to close the week at $65.06.
After considerable see-sawing of sentiment amid bouts of uncertainty as to whether Russia and Saudi Arabia will be able to steer OPEC and non-OPEC collaborators towards agreeing to a supply boost, the market had come around to the view last Friday that they will. Crude’s slump was pricing in the prospect of a 1 million b/d increase in supply, to be agreed when the oil ministers meet in Vienna June 22-23.
That sentiment took yet another about-turn Monday, June 18. And it now looks like the decision will go down to the wire.
Russia and Saudi Arabia intended to seek a production increase of 1.5 million b/d at the meeting, starting from the third quarter of this year, Russian Energy Minister Alexander Novak said on Saturday (June 16).
Novak's comments underscored that Saudi Arabia and Russia, de facto leaders of the OPEC and non-OPEC blocs participating in the 1.8 million b/d collective production restraint agreements since January 2017, are intent on easing the cuts, despite reservations and outright disagreements expressed by some of their colleagues.
The 1.5 million b/d figure could be the result of a recalculation of the potential gap in global supply since the St. Petersburg meeting of May 25 between Novak and his Saudi counterpart Khalid Al-Falih, when the two agreed that the market needed 1 million b/d more. Or it is simply a classic negotiation tactic for Friday’s meeting — start with a bigger number (an extreme demand) and then make small concessions to the opponent(s).
Saudi Arabia, for its part, is said to be discussing options ranging from a hike of 500,000 b/d to 1 million b/d.
Despite the weight Novak and Al-Falih carry, the upcoming meeting could end up being rancorous, with plenty of horse-trading, ending in a compromise decision.
Iran has set itself up in direct opposition to the big-two, saying it will veto any proposal to increase output, along with fellow OPEC members Iraq and Venezuela.
“If the Kingdom of Saudi Arabia and Russia want to increase production, this requires unanimity. If the two want to act alone, that’s a breach of the cooperation agreement," Iran's OPEC governor Hossein Kazempour Ardebili was quoted as saying by Bloomberg on Sunday.
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Headline crude prices for the week beginning 16 September 2019 – Brent: US$69/b; WTI: US$63/b
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