London — Crude oil futures were trading in a narrow range in late morning European trading Friday on a lack of consensus on both the EU response to the US sanctions and the likelihood of Saudi Arabia increasing production to offset drop in Venezuela's oil output.
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At 1045 GMT, ICE July Brent crude futures were trading at $77.41/b, down 6 cents from Thursday's settle, while NYMEX June WTI crude futures were 13 cents higher at $71.49/b.
"Today market participants are still taking a view on the impact of US withdrawal from Iran deal and I think it is going to continue into next week after a meeting of the three European powers, China and Russia with Iranians," Petromatrix oil analyst Olivier Jakob said.
While most signatory countries to the 2015 nuclear agreement -- the UK, France, Germany, Russia and China -- vowed to uphold the deal with Iran, many multinational companies which currently do business with Iran are likely to comply with the US sanction regime to avoid any financial penalties.
"There will also be a focus next week on the world supply and demand outlook from the IEA and OPEC," he added, referring in particular to the International Energy Agency's monthly report. According to him, there is currently a debate on whether OPEC and in particular Saudi Arabia would compensate any potential loss of Iranian barrels by increasing their own crude production. "[US President Donald] Trump does not want to see high gasoline prices in the summer so he might put some pressure on Saudi Arabia," he said.
Moreover, the unplanned plunge in Venezuela's oil output has already led to an over-achievement of OPEC's production cut targets. "There is a big drop of production from Venezuela...so there is still room for Saudi Arabia to increase its production within the agreed framework of production cuts," Jakob said.
According to Commerzbank commodities analysts, if OPEC is interested in long-term price stability, it should signal a willingness -- at its meeting in Vienna in six weeks' time at the latest to offset possible export outages from Iran and even to bring the production cut agreement to a premature end.
However, if short-term price goals are pursued, OPEC will insist that the agreement remains in place or discuss the possibility of extending it to beyond 2018.
"We believe that OPEC is cutting off its nose to spite its face in the long term with this strategy and will massively encourage non-OPEC production," Commerzbank analysts said, adding that the US Energy Information Administration had revised its forecast for US oil production sharply upward again on Tuesday.
"The increase in the 2019 estimate as compared to the April figure alone is 400,000 b/d, which would offset most of any possible Iranian outages. Given the current hyped-up mood, however, hardly any attention is being paid to this estimate," Commerzbank analysts also said.