London: Oil prices rose on Wednesday, supported by a drop in US commercial crude inventories and the loss of storage capacity in Libya, with investors cautious ahead of a biannual meeting of the Organization of the Petroleum Exporting Countries (Opec) to decide production policy.
Benchmark Brent crude was up 70 cents at $75.78 a barrel by 1.05pm. US light crude was 60 cents higher at $65.67. US crude inventories fell by 3 million barrels to 430.6 million barrels in the week to 15 June, according to an American Petroleum Institute report on Tuesday.
Traders said a drop in Libyan supplies due to the collapse of an estimated 400,000-barrel storage tank also helped push up prices.
Looming large over markets, however, were meetings on 22-23 June in Vienna of Opec with other big producers, including Russia.
De-facto Opec leader and top crude exporter Saudi Arabia, as well as Russia, which is not a member of the cartel but is the world’s biggest oil producer, are pushing to loosen supply controls introduced in 2017 to prop up prices.
Other Opec-members, including Iran, are against such a move, fearing a sharp slump in prices.
“Unlike previous meetings, the run up to this Opec meeting is fraught with uncertainty with Iran from the onset adopting a very entrenched opposition to any supply increase," Harry Tchilinguirian, head of global oil strategy at French bank BNP Paribas, told the Reuters Global Oil Forum.
Jack Allardyce, oil and gas research analyst at Cantor Fitzgerald Europe, said he expected Opec would agree to pump more oil, probably a fairly modest 300,000-600,000 barrels per day, or only around 0.5% of total world production. “We could see this knocking $5 per barrel off Brent," Allardyce said.
Markets are also anxiously watching trade tensions between the US and China, in which both sides have threatened to impose stiff duties on each other’s exports, including US crude oil.
A 25% tariff on US 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 US crude, which have boomed in the last two years to a business now worth around $1 billion per month.