Crude oil prices sustained losses yesterday with the price of United States West Texas Intermediate (WTI) crude oil tumbling nearly three per cent, on worries that Saudi Arabia and Russia could pump more crude oil to compensate for a potential supply shortfall, with hedge funds reducing bullish positions in crude oil.
Ahead of the Organisation of the Petroleum Exporting Countries’ meeting in Vienna on June 22, concerns that Saudi Arabia and Russia could boost output have exerted downward pressures on oil prices, along with rising production in the United States.
The global benchmark, Brent crude oil futures fell to $74.62 per barrel, a 0.9 per cent loss, while US West Texas Intermediate (WTI) crude futures slumped $1.83, or 2.7 per cent, to $66.05 per barrel.
Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by one million barrels per day (bpd) to counter potential supply shortfalls from Venezuela and Iran.
Saudi Arabia and Russia’s discussion on the possibility of raising production, combined with news of an uptick in US crude oil production, prompted steep declines in crude oil futures last week.
Venezuela’s oil output has taken a sharp turn lower in recent years, with the country facing an economic crisis of chronic food shortages and spiking inflation.
Crude oil production in the Latin American state has dropped to around 1.4 million barrels a day in recent months — a spectacular collapse of nearly 40 per cent since 2015.
The Brent price has fallen nearly seven per cent since hitting $80.50 on May 17, its highest since 2014.
Hedge funds and other money managers reduced their net long position in Brent and WTI by 169 million barrels over the five weeks to May 22.
According to agency reports, Brent now commands its largest premium over U.S. futures in more than three years, and this implies that US exports are rapidly becoming far more competitive globally than those from northern Europe, Russia or parts of the Middle East.
The spread between Brent and US crude oil stands at nearly $9 per barrel, its widest since March 2015.
U.S. oil production has surged by more than 20 percent in the past two years to 10.73 million bpd.
That puts the United States ahead of Saudi Arabia and within reach of top producer Russia, which pumps about 11 million bpd.
Record crude oil volumes from the United States are expected to head to Asia in the coming months, nibbling away the market share of OPEC and Russia.