Oil tumbles as Russia is said to oppose deeper production curbs
New York: Crude oil fell sharply, snapping the longest winning streak this year, as Russia was said to oppose any proposal to deepen OPEC-led production cuts.
Futures dropped as much as 4% in New York after eight straight sessions of gains. Russia doesn’t want to change the current deal because any further supply curbs would send the wrong message to the market, according to government officials. The US dollar strengthened, reducing the appeal of commodities denominated in the currency.
Russia “pretty much threw cold water” on rumors of additional cuts, said Bob Yawger, director of the futures division at Mizuho Securities USA in New York. The American Petroleum Institute is due to issue weekly US inventory numbers Wednesday afternoon.
Oil and gas companies’ shares were down across the board. Bloomberg Intelligence’s index of independent exploration and production companies fell as much as 4.4%. Baker Hughes plunged 34% on its first day of trading as a unit of General Electric Co.
While crude prices surged last week, futures are down 15% for the year amid concerns that rising global supply will offset the output cuts from the Organization of Petroleum Exporting Countries (OPEC) and its partners. Libya and Nigeria, which are exempt from the agreement, accounted for half of the group’s production boost last month, according to data compiled by Bloomberg.
“Now we’ll see if this rally was based on loose expectations that there could’ve been some agreement or additional cuts, or if it was a rally on short-covering,” Mizuho’s Yawger said.
A short-covering rally is when short-sellers take advantage of low prices to go on a buying spree to return securities they borrowed and sold when prices were higher.
West Texas Intermediate for August delivery was down $1.78 to $45.29 a barrel on the New York Mercantile Exchange at 11:52 am in New York. Tuesday’s transactions will be booked on Wednesday for settlement purposes because of the US Independence Day holiday. Prices gained almost 11% in the eight days through Monday.
Brent for September settlement was at $47.99 a barrel on the London-based ICE Futures Europe exchange, down $1.62. The contract fell 0.1% to $49.61 on Tuesday, the first decline in nine sessions.
Deepening cuts would suggest that OPEC, Russia and their allies are nervous that the pact to reduce output by a combined 1.8 million barrels a day through March 2018 isn’t doing enough to support prices, one of the Russian officials said.
“Any opposition to deeper output cuts supports the doubters of the effectiveness of the supply deal, fuelling bearish oil-market sentiment,” said Norbert Ruecker, head of commodities research at Julius Baer Group Ltd. in Zurich. Bloomberg