Why have Crude Oil Prices Reversed their Recent Rally?

Andamento del mercato - 06/06/2018

Crude oil prices fell to a near 2-month low on Tuesday on a report by Bloomberg that the U.S. asked OPEC to increase output by a million barrels a day.

U.S. retail gasoline prices surged to their highest in more than three years and this prompted U.S. President Donald Trump to go on Twitter, publicly blaming OPEC policy for high oil prices.

'Looks like OPEC is at it again,' Trump wrote in mid-April on Twitter. 'Oil prices are artificially Very High! No good and will not be accepted!' Trump tweeted.

The OPEC deal to limit output began in January 2017 in an effort to end a global oil glut that was suppressing crude prices. Most OPEC member have been compliant and have been cutting their production levels.

However, oil prices have been rising fast recently, with WTI hitting as high as $72 last month due to the U.S. announcing the imposition of sanctions on Iran (a large oil producer) as well as a drop in output from another large producer, Venezuela, due to the collapse of the Venezuelan energy industry and domestic political problems.

The U.S. is calling for steadier oil prices and U.S. Treasury Secretary Mnuchin has been talking to allies who have spare production capacity that would be willing to increase oil supply to offset the impact of sanctions.

Everything comes down to the June 22-23 meeting in Vienna where OPEC and its allies will discuss their production policy for the second half of the year

Saudi Oil Minister Khalid Al-Falih last month said the Kingdom shared the "anxiety" of consuming nations about high oil prices and added that OPEC and its allies were "likely" to boost output.

We have seen price on both benchmarks, WTI and Brent crude, falling in recent weeks due to the market’s expectation of OPEC increasing oil output.

WTI is currently trading around $65 a barrel, recovering some of Tuesday’s losses that took prices to the lowest since April. Price rose above $72 a barrel on May 22.

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