Energy Prospectus

ST PETERSBURG/DUBAI (Reuters) - Saudi Arabia and Russia are discussing raising OPEC and non-OPEC oil production by some 1 million barrels a day, sources said, while OPEC's chief said a complaint from U.S. President Donald Trump over high prices had triggered the idea of upping output.

Riyadh and Moscow are prepared to ease output cuts to calm consumer worries about supply adequacy, their energy ministers said on Friday, with Saudi Arabia's Khalid al-Falih adding that any such move would be gradual so as not to shock the market. < Because they really can't increase production rapidly, especially by a million barrels per day. - Dan

Raising production would ease 17 months of strict supply curbs amid concerns that a price rally has gone too far, with oil (LCOc1) having hit its highest since late 2014 at $80.50 a barrel this month.

OPEC began a discussion about easing production cuts following a critical tweet from Trump, OPEC's Secretary-General Mohammad Barkindo said. Trump tweeted last month that OPEC had "artificially" boosted oil prices.

"We pride ourselves as friends of the United States," Barkindo told a panel with the Saudi and Russian energy ministers in St. Petersburg at Russia's main economic forum.

The Organization of the Petroleum Exporting Countries and allies led by Russia have agreed to curb output by about 1.8 million barrels per day (bpd) through 2018 to reduce global stocks, but the inventory overhang is now near OPEC's target.

In April, pact participants cut production by 52 percent more than required, with falling output from crisis-hit Venezuela helping OPEC deliver a bigger reduction than intended. Sources familiar with the matter said an increase of about 1 million bpd would lower compliance to 100 percent of the agreed level.

Barkindo also said it was not unusual for the United States to put pressure on OPEC as some U.S. energy secretaries had asked the producer group to help lower prices in the past.

Oil prices fell more than 2 percent towards $77 a barrel on Friday as Saudi Arabia and Russia said they were ready to ease supply curbs.

This is the long-predicted backroom deal: Trump does the bully work for Riyadh and Israel in exchange for low
energy prices in the US economy and hobbled OPEC. Likely to damage some marginal E&Ps if the boomlet
materializes. Market reaction today seems to assume long-term bearish energy prices.

Trading the day before a major holiday is always exaggerated. Strong support level at $67/bbl for WTI. As long as that holds, none of my valuations (all based on $65/bbl WTI) will change.

Automated trading causes stuff like we are seeing today.

Why is the meeting between Saudi Arabia and Russia a surprise to anyone? OPEC has been producing way below the quota's in their Vienna agreement. My bet is that they have trouble replacing the lost production from Venezuela.

Oil prices slump as OPEC and Russia consider output boost
By Stephanie Kelly Reuters•May 25, 2018

Oil prices fell about $3 per barrel on Friday as Saudi Arabia and Russia discussed easing supply curbs that have helped push crude prices to their highest since 2014. Brent crude futures fell $2.69, or 3.4 percent, to $76.10 a barrel by 1:07 p.m. EDT (1707 GMT). The contract hit its highest since late 2014 at $80.50 last week. Brent was on track to fall about 3.1 percent this week, which would be its largest weekly percentage loss since early April.

(WTI) fell $3.04 to $67.67 a barrel, 4.3 percent loss. Following 6 weeks of gains, WTI was set to lose about 5.1 % for the week, which would be its biggest loss since early February.

The discount of WTI to Brent hit $8.53 per barrel, its widest since May 17, and not far off levels last seen three years ago.

The energy ministers of Russia and Saudi Arabia met to review terms of a global oil supply pact in place for 17 months, ahead of a key OPEC meeting in Vienna next month.

The ministers, along with their counterpart from the United Arab Emirates, discussed an output increase of about 1 million barrels per day (bpd), sources told Reuters.

Russia's energy minister said oil ministers from OPEC and non-OPEC participating in a deal to cut output likely decide to gradually ease curbs at meeting in Vienna next month.

"Different options will be put forward. But, it is likely this will be gradual easing," Alexander Novak said in comments published on the Russian energy ministry website on Friday.

Global crude inventories have fallen over the past year because of the OPEC-led cuts, which were boosted by a dramatic drop in Venezuelan production.

This comes even as U.S. crude production has risen. The United States in February produced 10.3 million bpd, a record. The U.S. oil rig count rose by 15 to 859 in the week to May 25, the highest level since March 2015, General Electric Co's Baker Hughes energy services firm said. [RIG-OL-USA-BHI]

Saudi Energy Minister Khalid al-Falih said any easing of restrictions on pumping levels would be gradual to avoid a shock to the market.

The prospect of renewed sanctions on Iran after Trump pulled out of an international nuclear deal with Tehran has further boosted prices in recent weeks. However, market participants should not read too much into Friday's sell-off due to thin volume ahead of U.S. Memorial Day weekend, said Rollingson, portfolio manager ICON Energy Fund. "It's the last Friday before a long weekend and the volume has a tendency to go down and with lower volume there's always a chance of higher volatility," Rollingson said.