US benchmark WTI crude is down nearly 4% as Saudi Arabia reports emerge that not only can the Saudis sustain today’s low oil prices, but output increases are likely to be announced next week, for June output, sources speaking to both Reuters and Bloomberg have indicated.
On Wednesday, Reuters cited five unnamed sources as saying that the Saudis have no intention of boosting oil markets with further supply cuts, as Riyadh’s budget can tolerate sustained low prices.
On the contrary, sources are suggesting that the Saudis could start producing more to grab more market share after sacrificing production for OPEC+ voluntary cuts for so long.
Additionally, Bloomberg on Wednesday cited oil traders as saying they expect the Saudis to now push the cartel for another supply boost next week for June, and that this time it will be exponentially larger.
“History shows that when OPEC+ leadership decides to encourage compliance by supply pressure, it does not stop until it achieves its goal,” Bloomberg quoted Bob McNally, president and founder of Rapidan Energy Advisers LLC and a former White House energy official, as saying on Wednesday.
Earlier this month, OPEC+ announced it would advance the cartel’s planned phase-out of voluntary oil output cuts by ramping up output by 411,000 barrels per day in May–equivalent to three monthly increments. That move was our first indication that the Saudis may be prepared to give up their role as swing producer, having for too long picked up the slack for OPEC+ quota violators who continue to overproduce, including Kazakhstan, the UAE and Iraq.
Traders are also eyeing geopolitical motivations here, according to Bloomberg, with the Saudis attempting to appease Washington, which has called on OPEC to intervene to lower fuel costs by pumping even more.
At 1:31 p.m. ET on Wednesday, Brent crude was trading at $63.14, down 1.79%, while the U.S. crude benchmark, West Texas Intermediate (WTI), was trading down a sharp 3.53%, to trade at $58.29.
By Charles Kennedy for Oilprice.com
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