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Oil dropped below $75 a barrel in London after Saudi Arabia and Russia pledged about 1 million barrels of additional daily supply to allay consumer worries.
Brent crude, the global benchmark, fell as much as 2.4 percent after Saudi Arabia’s Energy Minister Khalid Al-Falih promised on Saturday to act decisively to keep prices under control, sitting alongside Russian counterpart Alexander Novak at OPEC’s headquarters in Vienna. Prices had jumped on Friday, when the producer group failed to clarify the size of the increase. Brent’s premium to the U.S. benchmark narrowed sharply.
The Saudis and Russia agreed to begin to unwind production curbs put in place in early 2017, concerned that crude prices near three-year highs could start to curb economic growth and demand for fuels. Saudi Arabia has also faced pressure from U.S. President Donald Trump who has criticized the group for keeping prices too high. Trump said he hoped that the group would increase output substantially in a tweet on June 22, after the end of the ministerial gathering.
“After Friday’s ambiguous OPEC meeting outcome, Saudi Arabia and Russia sought to reassert control of the narrative,” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC in New York, adding it would send a strong supply signal to the market.
Al-Falih signaled that supply would increase by near 1 million barrels a day after the Organization of Petroleum Exporting Countries adopted a pact aimed at lifting output. He was seeking to reassure the market after several cartel members said the actual increase would only reach 700,000 because some nations are incapable of pumping more.
Brent futures for August settlement fell as much as $1.81 to $73.74 a barrel on the ICE Futures Europe exchange, and traded at $74.52 at 1:04 p.m. in London. The contract gained $2.50 to settle at $75.55 a barrel on Friday.
In contrast, WTI crude for August delivery added 34 cents to $68.92 a barrel. The contract jumped 4.6 percent to $68.58 on Friday. Total volume traded was 37 percent above the 100-day average.
The differing reaction narrowed Brent’s premium to less than $6 a barrel from more than $10 last week. The spread will continue to shrink, helped by driving season in the U.S., according to Oanda Corp.
The OPEC deal, which was reached after a last-minute compromise with Iran, is a victory for Saudi Arabia and Russia which both backed an increase. They now have more room to respond to supply risks and moderate prices at a time when U.S. sanctions threaten to disrupt Iranian and Venezuelan exports.
Iran said it didn’t believe buyers of its oil would get waivers from the U.S. government after Trump’s renewal of sanctions. That’s a signal that exports from the Islamic Republic may fall much further, more quickly than expected.
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