Oil prices fell on Tuesday after Saudi Arabia and Russia announced that participants in the OPEC pact may boost their production by 1 million barrels per day to compensate for Venezuelan and Iranian supply shortfalls.  Financial Times photo.

Oil prices down about 7 per cent since May 22

On Tuesday, oil prices continued to fall after comments made by officials from Saudi Arabia and Russia last week about the possibility that OPEC supply cut participants will increase their crude output to compensate for falling exports from Venezuela and Iran.

After early gains, by 12:32 p.m., EDT, Brent crude slipped 25 cents to $75.07/barrel. US WTI was down $1.54 to $66.34/barrel and the Canadian Crude Index fell a whopping 10.05 per cent to $42.16.

With the nearly $9 discount between Brent and US WTI futures sitting at the highest its been in over three years, US crude exports are now much more competitive globally than those from northern Europe, Russia or parts of the Middle East.

“Rising anticipation of a gradual exit from the OPEC-led output-cut agreement has continued to weigh on oil prices,” Abhishek Kumar, senior analyst at Interfax Energy Global Gas Analytics told Reuters.  He added that the devil will be in the detail when the producer group meets in June.

“Market participants will closely watch how quickly any such measure is implemented and whether it will go beyond just balancing the output drop from Venezuela.”

Russia and Saudi Arabia have raised the possibility of boosting OPEC and non-OPEC crude production by 1 million b/d to counterbalance Venezuelan and Iranian supply shortfalls.

Social and economic crisis in Venezuela have left the state-owned oil company PDVSA struggling to pay its bills.  US President Donald Trump’s decision to abandon the Iran sanction relief program and impose sanctions on Iranian crude exports also cuts global supplies.

Record high US crude production has impacted oil prices.  Brent crude has fallen nearly 7 per cent since hitting a 2014 high of over $80/barrel on May 22.

“High uncertainty clouds the short-term outlook and we maintain a neutral view. In the medium to longer term, we still see oil prices falling as indicated by the downward-sloping futures curve. Our ‘low for longer’ view is deferred, not refuted,” Reuters reports Julius Baer’s Norbert Ruecker said in a note.

OPEC will meet in Vienna on June 22-23.  Members will discuss bumping up production at that meeting.

The cartel and Russia are also facing strong competition for Asian customers from US crude exports which have recently reached record levels.

In the past two years, US oil production has jumped over 27 per cent to 10.73 million b/d.  The US is now the world’s second largest producer of oil, ahead of Saudi Arabia and slightly behind Russia’s 11 million b/d.