MADRID – Oil futures extended gains on Friday, as major crude producers – including Saudi Arabia – agreed to a smaller-than-expected increase in output that calmed investor fears about crude flooding the market.
Brent crude, the global benchmark, was most recently up 2.9 percent at $75.20 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were up 2.5 percent at $67.25 a barrel.
The Organization of the Petroleum Exporting Countries will boost its production by 600,000 barrels a day, according to The Wall Street Journal. Going into the meeting, many analysts had believed that the total increase would be 1 million barrels.
Investors are not concerned that additional flows could overwhelm the market because the increase in output would be less than the market deficit of 1.8 million barrels forecast by analysts.
“Given the supply risks of Libya, Venezuela, and eventually Iran... the market sees this increment as something that’s not going to tilt it into bearish territory,” said Harry Tchilinguirian, global head of commodity markets strategy at BNP Paribas. “With OECD inventories now below their famous 5 year average prices will keep grinding higher.”
Still, experts warn that geopolitical turmoil could now disrupt the supply flows.
“Any increase in production will come at the expense of spare capacity so that leaves the market much more vulnerable to future supply shocks,” said Emily Ashford, director of energy research at Standard Chartered.
The cartel and external producers such as Russia have been involved in an effort since 2016 to mop up a previous glut in the market and remove almost 2 percent of the global crude supply in a bid to prop up crude’s value.
In response to the group’s efforts, global inventories have fallen and crude prices have reached almost three-year highs.
Now, analysts project that geopolitical developments, including a collapse in Venezuela’s oil industry and the re-imposition of United States trade sanctions on Iran, may remove additional barrels of oil from the market and worsen a projected deficit in the second half of this year and in 2019. Experts project that the market will lose an additional 1.5 million barrels of oil a day by the end of this year.
Bottlenecks to production in the US have also raised expectations for tighter supply.
“The US is likely to grow less than anticipated, so I think some increase is prudent,” said Trip Rodgers, a portfolio manager at Boone Pickens Capital Fund Advisors. “We don’t think that we are suddenly going to be swamped in oil, particularly given that demand has held in very well.”
The Energy Information Administration said Wednesday that US stockpiles of crude fell by 5.9 million barrels in the week ended June 15, compared with analysts’ expectations for a 2.5-million-barrel decline. That puts total US commercial crude oil stockpiles at 427 million barrels, the lowest level since March.
Later on Friday, investors will eye data on US shale oil production.
Oil services firm Baker Hughes Inc. is set to release its weekly data on the number of rigs drilling for oil in the US, a bellwether for activity in the sector.
Nymex reformulated gasoline blendstock – the benchmark gasoline contract – was up 1.90 percent to $2.03 a gallon. ICE gasoil changed hands at $646.00 a metric ton, up $11.50 from the previous settlement.