By Barani Krishnan
Investing.com - With Mexican tariffs out of the way, Russia is back as a problem for oil bulls.
A lack of commitment by Russia on how much crude production it will cut in the second half of the year and whether the reductions will last through December was weighing on market sentiment Monday. That countered President Donald Trump’s 11th-hour decision not to impose tariffs on Mexico.
U.S. West Texas Intermediate crude settled down 63 cents, or 1.26%, at $53.36 per barrel, consolidating after the 4% comeback rally in the last two sessions.
Brent, the U.K.-traded global benchmark for oil, slid $1, or 1.58%, to $62.29 a barrel. Brent also gained nearly 4% in the previous two sessions.
WTI had traded as high as $54.84, with Brent reaching a peak of $64.10 before falling back.
As OPEC’s all-important June 25-26 meeting nears, Russia, the cartel’s main ally for price support, is dragging its feet again in giving a clear answer on production cuts.
The 14-member OPEC and its 10 non-member allies led by Russia, collectively known as OPEC+10, managed to boost crude prices by more than 40% this year through late April through a deal to jointly cut at least 1.2 million barrels per day over a six-month period.
In the past four weeks, however, oil was more than 20% off those April highs at one point, slipping into a bear market due to unseasonably weak pre-summer demand for fuels, surging crude stockpiles and fears of a global recession from the trade wars mounted by the U.S. With today's settlement, WTI has seen a 46% gain on the year as of April 23 slide to 17.3% and is nearly in a bear market again.
Trump decided late Friday not to go ahead with escalating tariffs of 5%-25% on Mexican imports.
But other headlines early on Monday, quoting Russian Energy Minister Alexander Novak saying that there are big risks of oversupply if the OPEC+10 deal is not extended, served to rattle the market more than calm it, traders said.
To make matters worse, Novak also said he anticipated a scenario of oil prices falling to $30 per barrel without a new production cut deal.
While not citing the exact number of barrels Russia would cut, Novak said there was a “need to monitor (the) oil market to take a balanced decision in July”.
His mention of July was also unsettling to the market as the OPEC meeting is scheduled for June 25-26, but the Russians want it to be held next month instead. Iran, a key member of OPEC but under U.S. sanctions that are preventing its oil from being freely exported, has opposed holding the meeting in July.
Saudi Energy Minister Khalid al-Falih, the most influential oil minister within OPEC, validated the market’s concerns on Monday when he acknowledged that the “remaining country to jump on board (for extension of production cuts) now is Russia”.
“I will wait for the Russian dynamics to work themselves out,” Falih said in an interview with Moscow-based news service Tass. “There is debate obviously within the country about the exact volume that Russia should be producing in the second half.”