Published: Thu, May 31, 2018
Money | By Hannah Jacobs

Global price of oil falls

Global price of oil falls

Oil prices decline for third consecutive on the background of statements by Saudi Arabia and Russia's readiness to increase production, a new jump in drilling activity in the United States and a record year of sales of hedge funds in the futures market.

But the oil market is now in danger of overheating amid geopolitical tension, and traders are keenly focused on how much oil OPEC agrees to restore next month in Vienna.

The drop was accompanied by relatively heavy volume suggesting some capitulation from the extreme long crude speculative positioning.

Futures slumped as much as 3.1 per cent in NY.

Saudi Arabia and Russia's proposal to revive production signals supplies are now tight, and isn't a bearish development, Goldman analysts including Damien Courvalin wrote in a report.

According to Reuters, the discussions were triggered by complaints from US President Donald Trump that the oil price has soared too high and was being propped by artificially by OPEC, after Brent Crude hit its highest level since late 2014 at $80.50 this month. "The increase in crude prices comes on the back of an increase in customs duty on palmolein and crude oil in March this year and some of the impact will definitely have to be passed on to consumers", said Krishna Rao, category head of biscuits maker Parle Products.

West Texas Intermediate for July delivery fell as much as US$2.08 to US$65.80 a barrel on the New York Mercantile Exchange and traded at US$66.79 at 3.55pm in Tokyo. But as US output is already at record highs, that news wasn't as damaging to crude as OPEC worries. The output cuts helped revive the market at that time.

"There could be 4-5% increase in prices across the sector in the next two quarters if crude prices remain at existing levels", said Saugata Gupta, MD of Marico, the maker of Parachute hair oil and Saffola cooking oil. Energy ministers from Saudi Arabia, the United Arab Emirates and Kuwait plan to meet in Kuwait City on Saturday to discuss OPEC matters, according to people with direct knowledge of the matter. Prices on Monday lost $1.14 to $75.30. This is primarily due to crude oil's surge to a 3½-year high on supply worries related to Venezuela and Iran.

Initial talks are being led by the energy ministers of OPEC kingpin Saudi Arabia and Russian Federation at St. Petersburg this week along with their counterpart from the United Arab Emirates, which holds the OPEC presidency this year, sources said.

Russia's oil output reached a 30-year high of 11.247 million bpd in October 2016 and it pledged to cut it by 300,000 bpd to 10.947 mln.

The upshot: Oil has played havoc with our currency market with the USD/INR pair plummeting all the way to 68 levels since April 2018.

Read: OPEC oil production cuts are history! On Friday, oil services firm Baker Hughes announced that USA energy companies added 15 rigs looking for new oil in the week ended May 25, bringing the rig-count to 859, the highest level since 2015.

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