Oil prices drop on surprise US stockpile build

The national consumer watchdog has said Australian motorists are directly paying for the extravagance of oil-rich Middle Eastern nations

Iran and Venezuela are now the two key oil supply concerns globally that supported the oil price rally in recent weeks, before Saudi Arabia and Russian Federation hinted at discussions that they were considering reversing some of the cuts to offset production losses and "ease market and consumer anxiety".

Crude prices came under pressure after data suggested Chinese demand was waning and concerns lingered about growing US output.

Further weighing on prices has been surging US output, which hit another record last week at 10.8 million bpd. Rising production has prompted selling since global benchmark Brent LCOc1 climbed above $80 a barrel last month. West Texas Intermediate (WTI) crude futures were down 38 cents, or 0.6 percent, at $65.57 a barrel.

The surge in U.S. production has pulled down U.S. WTI crude into a steep discount versus Brent to more than $11 per barrel, its steepest since 2015.

In April, PDVSA shipped 1.49 million barrels per day (bpd) of crude and fuels to its customers, 665,000 bpd below the 2.15 million contracted.

OPEC and Russian Federation will meet on June 22/23 to decide whether to increase production following a fall in global inventories.

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The group and Russian Federation are due to meet at its headquarters in Vienna on June 22 to discuss production policy."The June 22 OPEC meeting will now likely become the most important factor influencing (the) crude price", Jefferies said.

Oil prices rose on Friday, driven up as Venezuela struggles to meet its supply obligations and by ongoing voluntary output cuts led by producer cartel Opec. Gains grew when Algeria's oil minister indicated OPEC would focus on balancing the market rather than on rolling back production caps.

US investment bank Jefferies said the crude market is tight and spare capacity could dwindle to 2 percent of demand in the second half of 2018, its lowest level since at least 1984.

"It's a tug of war between the loss of supply from Venezuela and Iran and the potential output increase from OPEC and USA shale", said Tony Nunan, risk manager at Mitsubishi Corp.

He predicted OPEC would not heed the USA request and said oil prices would jump in response to Washington's sanctions on Iran and Venezuela, as they did during a previous round of US sanctions against Iran.

"If the production ceiling will really be lifted...there will be a renewed pressure on Brent", said Tamas Varga, analyst at brokerage PVM Oil Associates Ltd.

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