Global Markets: Oil Plunges Most in 11 Months as Saudis Hint Taps Will Open Up

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Oil prices fell the most in 11 months in New York as Saudi Arabia said it expects OPEC and its partners to boost supplies.

Bloomberg – Oil prices fell the most in 11 months in New York as Saudi Arabia said it expects OPEC and its partners to boost supplies later this year, easing restraints intact since early 2017.

U.S. futures were down 4 percent, the biggest drop since July 5, after Saudi Arabia Energy Minister Khalid Al-Falih said the supply caps may be scaled back, though he added that no decision has been made. The $2.83 decline pushed the price below $70 at the close of trading for the first time since May 8.

The potential for an OPEC policy change, following U.S. President Donald Trump’s tweet complaining about high prices, scrambled the outlook for oil markets and undercut the stock prices of producers. The S&P 500 Energy index dropped 2.7 percent.

“We’re starting to see growing concerns that producers could cut back on their output cuts,” said Gene McGillian, market research manager at Tradition Energy, in a telephone interview. “Taking that into consideration along with record U.S. production levels, it’s triggered a nice amount of profit taking.”

Explorers in the U.S. shale patch, meanwhile, were seen resuming their expansion plans this week as they continue to find a home for their crude around the world. U.S. working oil rigs rose by 15 this week to 859, the highest level since March 2015 and the biggest weekly boost since February, according to data from Baker Hughes.

“We’ve been having plenty of exports to kind of alleviate any sort of glut here,” said Ashley Petersen, lead oil analyst at Stratas Advisors in New York. “There seems to be just enough crude and it’s all finding a home to go to.”

The Saudi oil minister made his pronouncement on the supply cuts at a meeting in St. Petersburg with his Russia counterpart, Alexander Novak, who echoed the comments. The two ministers plan to meet at least twice more before an OPEC gathering in Vienna next month, the Saudi minister said.

Oil has traded near a 3 1/2-year high on concern about supply disruptions from Venezuela and Iran. The rally has sparked worries that demand may falter, and the Organization of Petroleum Exporting Countries and its allies appear to be reacting to that idea with the first offer to boost output since January 2017.

West Texas Intermediate for July delivery fell $2.83 to settle at $67.88 a barrel on the New York Mercantile Exchange. The contract lost 1.6 percent to $70.71 on Thursday. Total volume traded was about 35 percent above the 100-day average.

Brent futures for July settlement fell $2.35 to $76.44 a barrel on the London-based ICE Futures Europe exchange, the first weekly drop in seven weeks. The global benchmark crude traded $8.55 above WTI for the same month, the biggest premium in more than three years.

Futures for September delivery fell 1.6 percent to 477.4 yuan a barrel in afternoon trading on the Shanghai International Energy Exchange. Prices are down 1.9 percent this week. The contract rose 0.1 percent to 485 yuan on Thursday.

Trump’s April 20 gave voice to a concern held widely in the U.S. and other consuming countries that oil’s rally from less than $30 in early 2016 to more than $70 in New York risked becoming a threat to global economic growth. It also came ahead of the U.S. Memorial Day holiday weekend, when high gasoline prices will be at issue.

Other oil-market news:

The world’s top oil trader, Vitol Group, said it will be near impossible to avoid U.S. sanctions on Iran, suggesting U.S. President Donald Trump’s attack on OPEC’s third-largest producer may have a bigger impact on the global crude market than many anticipate. The rise in oil prices to $80 a barrel is starting to cause concern across boardrooms, with some big industrial consumers, including airlines and shipping companies, starting to buy more insurance against rising energy prices. Andurand’s oil hedge fund to turn investors away from June The world’s largest oil exporter just made a policy swerve, moving from advocating higher prices to trying to stop the rally Gasoline futures in New York were set for the first weekly decline since early May, and traded at $2.1917 a gallon.

With assistance from Tsuyoshi Inajima, Grant Smith, Sharon Cho and Robert Tuttle. To contact the reporters on this story: Catherine Ngai in New York at cngai16@bloomberg.net; Robert Tuttle in Calgary at rtuttle@bloomberg.net. To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net Christine Buurma.

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