Oil’s rally to its highest level since 2014 was curtailed this month after two of the world’s biggest crude suppliers signaled they may scale back historic output cuts that helped drain a global glut.
Futures in New York fell 0.2 percent, set for the first monthly drop since February after touching a fresh three-year high early last week. Prices dropped almost 8 percent over five sessions following a Saudi-Russia proposal to phase out supply curbs that resurrected prices from the biggest crash in a generation. Crude halted its slide Wednesday after the dollar declined, boosting the appeal of commodities priced in the U.S. currency.
Oil had surged earlier this month, driven by Donald Trump’s decision to renew American sanctions on OPEC member Iran and as output plunged in Venezuela on an economic crisis. While prices were then weighed down by concerns over the Saudi-Russia plan, as well as fears over ongoing U.S.-China trade frictions and European political turmoil, Goldman Sachs Group Inc. has kept its bullish outlook on oil, citing strong global demand.
“Oil’s still heading upward, but it’s the external factors such as uncertainties about OPEC’s next steps, geopolitical risks and the dollar’s movement that are boosting oil’s volatility,” Will Yun, a commodities analyst at Hyundai Futures Corp., said by phone. “We may not see oil rising to the levels we’ve seen in May because the possibility of OPEC raising output will continue to put a lid on prices.”
West Texas Intermediate for July delivery traded at $68.08 a barrel on the New York Mercantile Exchange, down 13 cents, at 1:02 p.m. in Tokyo. The contract is poised for a 0.7 percent drop this month after an 11 percent rally in the previous two months. Total volume traded was about 26 percent below the 100-day average.
Brent futures for July settlement, which expires Thursday, dropped 0.4 percent to $77.21 a barrel on the London-based ICE Futures Europe exchange. The more-active August contract slipped 0.3 percent. The global benchmark traded at a $9.14 premium to WTI for July. Prices are up 2.7 percent in May, smaller than the near 7 percent increase in each of the previous two months.
Futures were 2.1 percent higher at 473.6 yuan per barrel on the Shanghai International Energy Exchange. The contract is on course for a 6.6 percent advance this month, a second month of gains since the derivatives’ debut on March 26.
The Organization of Petroleum Exporting Countries and its partners were said to conclude that the market re-balanced in April, with the global surplus shrinking to less than the five-year average in April. As the oversupply was cleared, fears began emerging that the loss of barrels from Iran and Venezuela in the global oil market could cause a supply shortage, and that higher prices may hurt consumption.
Saudi Arabian Energy Minister Khalid Al-Falih said scaling back supply caps put in place since early 2017 is “on the table,” though no decision has been made, and Russian counterpart Alexander Novak said the group and allies will discuss loosening the curbs at their June meeting.
Still, the two countries may struggle to convince the other producers to change tack as many are unable to raise capacity and may argue the near-term boon of higher prices is more important, according to Nordine Ait-Laoussine, president of Geneva-based consultant Nalcosa and former energy minister of Algeria.
Also holding the attention of traders this month has been the widening spread between Brent and WTI prices. The New York marker closed at its steepest discount to its London counterpart since March 2015 on Wednesday, as U.S. surging output and a lack of pipeline capacity in the prolific Permian Basin shale play in Texas exacerbates swelling U.S. inventories.
The American Petroleum Institute was said to report U.S. crude inventories rose by 1 million barrels last week. The pipeline shortages now hammering Permian shale producers are likely to be a recurring theme in the coming years, Apache Corp.’s chief executive officer is warning. Gasoline futures were up 0.3 percent to $2.1906 a gallon, heading for a third monthly advance.