Singapore — Oil prices eased on Friday as Russia hinted it may gradually increase output, after having withheld supplies in concert with producer cartel Opec since 2017.
Brent crude futures were at $78.69 a barrel at 2.08am GMT, down 10c from their last close and more than 2.2% below the $80.50 November 2014 high they reached on May 17.
Brent, the global benchmark, broke through $80 for the first time in more than three years earlier in May.
US West Texas Intermediate (WTI) crude futures were at $70.62 a barrel, down 9ce from their last settlement.
“Oil prices are now starting to drift a little,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader. This was due to Opec’s and Russia’s “moves towards an increase in production at the June meeting”.
The Middle East-dominated Organisation of the Petroleum Exporting Countries (Opec) as well as a group of non-Opec producers led by Russia started withholding output in 2017 to tighten the market and prop up prices.
But Russia, in particular, has been floating a potential end to the production cuts, with Energy Minister Alexander Novak saying on Thursday that restrictions on oil production could be eased “softly” if Opec and non-Opec countries see the oil market balancing in June.
“The Russians have always struck me as production-cut tourists keen to get off the boat and crank up production as soon as inventories were stabilised and prices once again elevated…. That possibility is top of the mind for traders and as a result oil prices are slipping,” McKenna said.
Cost of higher prices
While Russia and Opec benefit from higher oil prices, which have risen by almost 20% since the end of last year, their voluntary production cuts have opened the door to other producers to ramp up output and gain market share.
US crude oil production has risen by more than a quarter in the past two years, to 10.73-million barrels a day. Only Russia produces more, at about 11-million barrels a day.
Output by producers such as the US, Canada or Brazil, which are not bound by the Opec and Russian-led agreement to cut, will probably rise further as higher crude prices improves their profitability.
“With oil prices rising more than costs, average industry profitability has turned positive this year,” Bernstein Energy said in a note this week.
The 50 largest listed oil companies globally “need $47 per barrel oil prices to break even in aggregate”, it said.