Oil prices softened in early trade on Friday, weighed on by conflicting messages from Russia and Saudi Arabia ahead of the next OPEC+ policy meeting and a stronger dollar. Brent crude fell 30 cents to $75.96 a barrel at 0315 GMT, while U.S. West Texas Intermediate was down by 14 cents at $71.69 a barrel.
Benchmarks settled more than $2 per barrel lower on Thursday, after Russian Deputy Prime Minister Alexander Novak played down the prospect of further OPEC+ production cuts at its meeting in Vienna on June 4. Both prices however were still poised to post a second week of gains of slightly less than 1%.
“Crude prices are weakening as king dollar returns and after Russia slashes any Saudi hope of delivering another production cut at the June 4 meeting,” said senior market analyst Edward Moya. Russian President Vladimir Putin said on Wednesday that energy prices were approaching “economically justified” levels, also indicating there could be no immediate change to the group’s production policy. Their remarks contrasted with comments this week from Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, the de-facto leader of the Organization of Petroleum Exporting Countries (OPEC), warning short sellers to “watch out”. Some investors interpreted that as a signal OPEC+ could consider further output cuts.
“OPEC+ watchers always pay close attention to Russia-Saudi communication as a rising rift could bring back the risk that the 23-nation alliance could fall apart,” Moya added. The higher dollar, which has strengthened for a fifth straight session against a basket of major peers, with U.S. data pointing to a resilient economy even after an aggressive rate hike cycle by the Federal Reserve, placed further downside pressures to oil futures.
A stronger greenback makes dollar-denominated commodities more expensive for those holding other currencies, denting demand. Markets continued to watch U.S. debt talks, as U.S. President Joe Biden and top congressional Republican Kevin McCarthy appeared to be nearing a deal to cut spending and raise the debt ceiling.
On the positive side, May supplies from OPEC+ and Russia have falling mostly in line with the earlier agreement for further output cuts. As of last week, OPEC+ members who agreed to earlier cuts have reduced their exports by 1.5 million barrels per day (bpd), while Russian exports fell 400,000 bpd from their respective peaks on April 25, with total exports from producers in the OPEC+ alliance down 1.4 million bpd month on month by May 23, JP Morgan analysts said in a note.