Oil slips further below $80 a barrel as focus on OPEC intensifies

Oil fell on Thursday, driven lower by the prospect of the first increase in OPEC output since 2016 in the face of concern over supply from both Venezuela and Iran, while a surprise rise in USA crude inventories raised doubt over seasonal demand.

Benchmark Brent futures were down $1.02 at $78.78 a barrel by 1353 GMT, the largest one-day fall since May 8, while US crude futures dropped $1.08 to $70.76 a barrel.

The Organization of the Petroleum Exporting Countries may decide in June to lift output to make up for reduced supply from crisis-hit Venezuela and Iran, which was stung by the US decision to withdraw from the nuclear arms control deal, OPEC and oil industry sources told Reuters. Meanwhile crude oil futures decreased 2.73% to $68.78 a barrel.

The excess in oil inventories, which has weighed on prices for three years, plunged in April to less than the five-year average for stockpiles in developed nations, according to people with knowledge of the data assessed at the meeting of the Joint Technical Committee of OPEC and other producers last week in Jeddah, Saudi Arabia.

OPEC and allied oil producers including Russian Federation concluded that the crude market re-balanced in April, when their output cuts achieved a key goal of eliminating the global surplus.

On the economic data front, U.S. durable goods orders fell 1.7% in April but the weaker reading was largely offset by a better-than-expected growth in orders minus transportation, which rose 0.9% to mark the third straight month of gains.

In 2016, OPEC and several oil producing countries outside the cartel agreed to cut oil production by a total of 1.8 million barrels per day in an effort to stabilize global oil prices.

"The chat is still that OPEC will do something at its June meeting in reaction to the looming prospect of a fall in crude production and exports from both Iran and Venezuela as the year progresses", said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

Supply concerns in Iran and Venezuela following new United States sanctions had pushed both Brent and WTI to multi-year highs, with Brent breaking through an $80 threshold last week for the first time since November 2014.

OPEC is likely to consider the situation further when it meets for its next ordinary meeting June 22.

OPEC has been cutting crude output by 1.8 million bpd to prop up oil prices. The weekly instalment of drilling activity from Baker Hughes will provide investors with fresh insight into USA oil production and demand.

  • Eleanor Harrison