Oil Set for Weekly Loss in London as OPEC Clash on Supply Looms

Oil headed for a second weekly decline in London as OPEC members were set to clash on raising production at a meeting next week.

Brent crude slipped on Friday, on course for a 1.5 percent drop this week. Saudi Oil Minister Khalid Al-Falih said it’s “ inevitable” the group will decide to boost output gradually when it meets on June 22, though Iran, Iraq and Venezuela oppose an increase. U.S. futures headed for a 1.5 percent weekly gain after nationwide stockpiles slumped the most since March, narrowing the gap between the American and European markers.

Both benchmarks have struggled to regain the highs of May after Saudi Arabia and Russia proposed relaxing output caps without consulting most fellow producers, and as U.S. President Donald Trump continued to criticize the Organization of Petroleum Exporting Countries for boosting prices. Meanwhile, two of Libya’s biggest oil ports halted loading on Thursday after clashes erupted between rival forces, taking barrels off the market.

“Raising production seems to be certain at OPEC’s meeting, the question is by how much,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

Brent futures for August settlement were at $75.30 a barrel on the London-based ICE Futures Europe exchange, down 64 cents, at 10:36 a.m. in London. The contract dropped 1 percent to $75.94 on Thursday. The global benchmark crude traded at a $8.89 premium to WTI for the same month.

WTI crude for July delivery traded at $66.74 a barrel on the New York Mercantile Exchange, down 15 cents. The contract is poised for the first weekly advance in a month. Total volume traded was about 35 percent below the 100-day average.

Futures fell 0.2 percent to 467.2 yuan a barrel on the Shanghai International Energy Exchange. The contract is set for a fourth weekly decline.

Daunting Task

The oil market has been whipsawed this month as various comments from global producers on whether the time has come to ease output cuts continued to sway sentiment. With prices last month recovering to 2014 levels and global inventories shrinking, the International Energy Agency has warned that crude demand growth could slow as reimposed sanctions on Iran by the U.S. and output declines from Venezuela tighten the market further.

Saudi Arabia’s Al-Falih and Russian counterpart Alexander Novak met Thursday in Moscow, as the two nations played in the football World Cup. While they share an understanding on the need for a smooth increase, they must convince other members of OPEC to drop their opposition and endorse a production hike when they meet in Vienna next week.

See also: OPEC+ to Restore 1.2m bbl Oil to Market by End of 2019: Blanch

“The market is likely looking for OPEC to announce that production cuts will run until end of the year,” said Jens Naervig Pedersen, senior analyst at Danske Bank A/S. “After that caps will be raised. For OPEC its important now to strike a fine balance and avoid a “taper tantrum” in the oil market as normalization will start sooner rather than later.”

OPEC and its allies could consider an output increase of as much as 1.5 million barrels a day, according to Novak. In theory, that would be enough to offset the supply losses from Venezuela and Iran as foreseen by the IEA. Saudi Arabia has been discussing different scenarios that would raise production by between 500,000 and 1 million barrels a day, according to people familiar with the matter.

In the U.S., the decline in nationwide crude stockpiles helped buoy WTI prices this week. The Energy Information Administration said inventories fell 4.14 million barrels last week, more than the estimate in a Bloomberg survey. Gasoline and distillates also slid, while domestic oil production climbed to 10.9 million barrels a day, topping 10 million barrels a day every week since early February, according to the EIA.

Oil-market news:

OPEC’s shipments will rise by 1.13 million barrels a day in the four weeks to June 30, compared with the period to June 2, Oil Movements said in a weekly report. Gasoline futures added 0.2 percent to $2.0942 a gallon, heading for a fourth weekly drop, the longest losing streak since June 2017.