Oil prices rose in early Asian trading on Wednesday, supported by a drop in U.S. commercial crude inventories reported by the American Petroleum Institute (API). U.S. crude inventories fell by 3 million barrels in the week to June 15 to 430.6 million barrels, according to the weekly API report published on Tuesday. Brent crude futures, the international benchmark for oil prices, were at $75.30 per barrel at 0008 GMT, up 22 cents, or 0.3 percent, from their last close. U.S. West Texas Intermediate (WTI) crude futures were at $65.34 a barrel, up 27 cents, or 0.4 percent.
Looming large over markets, however, was a June 22 meeting in Vienna of the Organization of the Petroleum Exporting Countries (OPEC), together with some other producers including Russia, to discuss forward supply policy. De-facto OPEC leader and top crude exporter Saudi Arabia as well as Russia, which is not a member of the cartel but the world’s biggest oil producer, are pushing for looser supply controls, which were introduced in 2017 to prop up prices. Other OPEC-members, including Iran, are against such a move, fearing a sharp slump in prices.
“Saudi Arabia and Russia continued to push for a relaxation in production constraints, going against many other members wishes,” ANZ bank said on Wednesday. “Iran rejected a potential compromise, saying it won’t support even a small increase in oil production. This puts Saudi Arabia in a tough position, as unanimity is needed for any accord to be reached,” it added.
Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe, said he had the “expectation that supply quotas will be increased, but probably more in line with the smaller range being quoted (300,000-600,000 barrels per day) given the lack of consensus amongst OPEC members.” Allardyce said “we could see this knocking $5 per barrel off Brent and perhaps squeezing the WTI discount a little.”
Markets were also anxiously watching trade tensions between the United States and China, in which both sides have threatened to impose stiff duties on each other’s export products, including U.S. crude oil.
A 25 percent tariff on U.S. crude oil imports, as threatened by China in retaliation for duties Washington has announced but not yet implemented against Chinese products, would make American crude uncompetitive in China versus other supplies.
This would almost certainly lead to a sharp drop-off in Chinese purchases of U.S. crude, which have boomed in the last two years to a business now worth around $1 billion per month.