Oil prices drop as Iran signals support for Opec output rise

SINGAPORE: Oil prices fell on Thursday as Iran signalled it could be won over to a small rise in Opec crude output, potentially paving the way for the producer cartel to agree a supply increase during a meeting on Friday.

However, prices were prevented from dropping further by record refinery runs in the United States and a large decline in crude inventories, a sign of strong fuel demand in the world’s biggest economy.

Brent crude futures were at $ 74.51 per barrel at 0152 GMT, down 23 cents, or 0.3 percent, from their last close.

US West Texas Intermediate (WTI) crude futures were at $ 65.64 a barrel, down 7 cents, or 0.1 percent.

Iran, a major supplier within the producer cartel of the Organization of the Petroleum Exporting Countries (Opec), signalled on Wednesday it could agree on a small increase in the group’s output during a meeting to be held at Opec’s headquarters in Vienna on June 22 together with non-Opec member but top producer Russia.

“There appears to be an air of confidence that this deal will move through,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage OANDA in Singapore.

“We expect Opec and Russia to gradually add supplies back to the market by next year, mostly offsetting the almost 1 million barrels per day (bpd) supply disruption in Venezuela,” Barclays bank said.

Tehran had previously resisted pressure by Opec’s de-facto leader Saudi Arabia to raise output.

Even with Iran appearing to fall in line, analysts do not expect a harmonious Opec meeting.

“Our expectations are for a tense, discordant and highly geopolitical Opec+ meeting,” said Japan’s Mitsubishi UFJ Financial Group in a note to clients.

Opec, together with other key producers including Russia, started withholding output in 2017 to prop up prices, but a tightening market in 2018 led to calls by major consumers for more supplies.

In a sign of robust demand, US refineries processed a seasonal record of 17.7 million bpd of crude oil last week, according to data from the Energy Information Administration (EIA) said on Wednesday.

Amid strong consumption, commercial US crude inventories dropped by 5.9 million barrels in the week to June 15, to 426.53 million barrels <C-STK-T-EIA>, the EIA said.

US crude oil production <C-OUT-T-EIA> was flat week-on-week, remaining at a record 10.9 million bpd.

Beyond the short-term, Barclays said there were headwinds for oil prices.

“Deleveraging in China and a weakening in the narrative around synchronous global economic growth are likely to add headwinds for all commodities,” it said.