Oil steadies as Trump budget proposal points to selling U.S. reserves
Near unanimity among OPEC watchers that production deal will be extended, with questions centered on length and severity of cuts
Oil prices on Tuesday switched between small gains and losses after finishing Monday at their highest settlement in about a month, with President Trump’s plan to sell some U.S. crude stockpiles as part of his broader budget proposal weighed on prices, market participants said.
Still, oil had gained modestly to start the week, and had rebounded nearly 10% over the past two weeks, as expectations grow for an extension to the OPEC-led production cut agreement when the group meets this week.
July West Texas Intermediate crude CLN7, +0.23% rose 12 cents, or 0.2%, to $51.26 a barrel after taking over as lead contract with Monday’s close. July Brent crude LCON7, +0.15% the global benchmark, gained 11 cents, or 0.2%, to $53.98 a barrel. Earlier in electronic trade, oil prices had been trading modestly lower.
The price action earlier was likely triggered by the budget proposal, although moves may be tempered by the fact that the proposal to sell half of the U.S.’s strategic reserves would be sold over the course of a decade, said Tamas Varga at brokerage PVM.
“The plan, if implemented, will not create a worryingly oversupplied situation,” Varga said.
Underlying the plan to eliminate the budget deficit, the White House is projecting a decade of rosy economic conditions—3% growth, steady inflation of 2%, the jobless rate rising slightly to 4.8% and modest interest rate increases.
Major oil producers will join members of the Organization of the Petroleum Exporting Countries in Vienna on Thursday to discuss extending the six-month agreement to cut production by 1.8 million barrels a day set to expire in June. There is near unanimity among watchers that the deal will be extended, with the only real questions centered on length and severity of cuts.
News reports Monday said that Saudi Arabia and Iraq together back a nine-month extension to the OPEC output cuts to the end of March 2018. Saudi Arabia’s Energy Minister Khalid al-Falih also said Monday that he doesn’t expect any OPEC opposition to a nine-month extension, according to Reuters.
“Two days ahead of OPEC’s meeting, a frantic rush is underway to bring all members into line so that the expectations that have been driven up in recent days can be met,” said Carsten Fritsch and the commodities team at Commerzbank, in a note.
“The Saudi-Arabian energy minister visited Iraq again for the first time in 30 years yesterday. His visit appears to have been a success given that Iraq, which was previously willing to extend the production cuts only by six months, has now signalled its agreement to nine months,” Fritsch said. “It remains to be seen how credible this will prove, however. After all, Iraq did not manage in the first five months of the agreement to comply with the cuts it had signed up to.”
Analysts at Nomura estimate that OPEC has been 90% compliant with the promised cuts so far, which began in Jan. 1, but the rebalancing of supply and demand could still be as far as 18 months away, some strategists say.
U.S. shale-oil producers have been steadily ramping up production with the Energy Information Administration, forecasting U.S. output to hit a record of nearly 10 million barrels a day in 2018.
June natural gas NGM17, -2.91% changed hands at $3.404 per million British thermal units, down 2 cents, or 0.6%.
—Sarah McFarlane and Riva Gold contributed to this article.