London — Oil fell on Thursday, driven lower by the prospect of the first increase in oil cartel Opec output since 2016 in the face of concern over supply from both Venezuela and Iran, while a surprise rise in US crude inventories raised doubt over seasonal demand.
Benchmark Brent futures were down 59c at $79.21 a barrel by 9.22am GMT, while US crude futures eased 41c to $71.43 a barrel.
“This discussion about possible Opec supply increases after the June meeting has put a brake on the oil price for the time being, so $80 is a big hurdle to overcome,” Commerzbank strategist Carsten Fritsch said. “If prices get above that, this will further intensify and increase the likelihood that Opec will do something … It’s going to be very difficult to overcome this level on a sustainable basis before the Opec meeting.”
Opec may decide at its meeting in June to increase oil output to make up for reduced supply from Iran and Venezuela and in response to concerns from Washington over a rally in oil prices, Opec and oil industry sources told Reuters.
Supply concerns in Iran and Venezuela following new US sanctions had pushed both Brent and West Texas Intermediate (WTI) to multi-year highs, with Brent breaking through an $80 threshold last week for the first time since November 2014.
“The chat is still that Opec will do something at its June meeting in reaction to the looming prospect of a fall in crude production and exports from both Iran and Venezuela as the year progresses,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
Opec and some non-Opec major oil producers are scheduled to meet in Vienna on June 22. The group previously agreed to curb their output by about 1.8-million barrels per day (bpd) to boost oil prices and clear a supply glut.
Meanwhile, commercial US crude inventories rose by 5.8-million barrels in the week to May 18, beating analyst expectations for a drop of 1.6-million barrels, the Energy Information Administration (EIA) said on Wednesday. The premium of Brent crude over WTI futures neared $8 a barrel, close to its widest in three years.
More worryingly for investors betting on a sustained rise in the crude oil price, inventories of petrol rose by 1.9-million barrels in the same week, just ahead of the Memorial Day holiday in the US, which typically marks the start of the summer driving season.
Meanwhile, refinery runs fell 7,000 bpd to 16.63-million bpd, a full 3.8% below the same week last year, according to the EIA data.