Yemisi Izuora
Brent crude futures, the international benchmark for oil prices, suffered a minor drop Monday as traders factored in an expected output increase that was agreed at the headquarters of the Organization of the Petroleum Exporting Countries, OPEC, in Vienna on Friday.
Brent crude price went down to $73.90 per barrel, or 2.2 percent from their last close, while U.S. West Texas Intermediate, WTI, crude futures were at $68.36 a barrel, down 0.3 percent, supported by a slight drop in U.S. drilling activities.
Prices initially jumped after the deal was announced as it was not seen boosting supply by as much as some had expected.
The OPEC and non-OPEC partners including Russia have since 2017 cut output by 1.8 million barrels per day (bpd) to tighten the market and prop up prices.
Largely because of unplanned disruptions in places like Venezuela and Angola, the group’s output has been below the targeted cuts, which it now says will be reversed by supply rises especially from OPEC leader Saudi Arabia.
Britain’s Barclays bank said OPEC’s and Russia’s commitments would take “the market from a -0.2 million bpd deficit in H2 2018 to a 0.2 million bpd surplus”. Energy consultancy Wood Mackenzie said the agreement “represents a compromise between responding to consumer pressure and the need for oil-producing countries to maintain oil prices and prevent harming their economies”.
In the United States, U.S. energy companies last week cut one oil rig, the first reduction in 12 weeks, taking the total rig count to 862, Baker Hughes said on Friday.
That put the rig count on track for its smallest monthly gain since declining by two rigs in March with just three rigs added so far in June, although the overall level remains just one rig short of the March 2015 high from the previous week.
Meanwhile, Kuwait’s energy minister said a joint OPEC and non-OPEC monitoring committee would look at how oil output increases will be allocated among producers, the official news agency KUNA reported at the weekend.
Asked about the mechanism to allocate production among OPEC and non-OPEC members following an agreement on Saturday to raise supply by returning to 100 per cent compliance with previously agreed output cuts, Bakhit al-Rashidi said: “This matter will be left for later for the market monitoring committee with the aim of reaching the best result in allocating it among the 24 participating countries.”
OPEC and its allies have since last year been participating in a pact to cut output by 1.8 million barrels per day.