WTI Crude futures plunged in early Asia trading - touching a $65 handle for the first time in over a month - after Saudi Arabia and Russia proposed easing output curbs.
As Bloomberg notes, oil earlier this month rose to the highest level in more than three years after President Donald Trump’s decision to reimpose sanctions on Iran and plunging Venezuelan output fueled supply concerns. With OPEC and allies achieving a key goal of eliminating the global surplus despite record production in the U.S., traders now are weighing whether Saudi Arabia and Russia will go ahead with their plan to revive output without reaching consensus with allies. The group are set to meet in June to decide its next steps.
The drop was accompanied by relatively heavy volume suggesting some capitulation from the extreme long crude speculative positioning. July WTI futures volume already tops 70,000 contracts -- more than 420% of the 10-day average for this time of day -- a feat even more impressive given that it's a public holiday in both London and New York.
“The latest signal from OPEC and Russia cooled down expectations for the group’s cuts, which have been a major factor boosting crude price since late last year,” Satoru Yoshida, a commodity analyst at Rakuten Securities Inc., said by phone from Tokyo.
“If OPEC and allies decide at the June meeting to maintain their production cuts through December and ease anxiety among investors, crude prices may rebound.”
What is perhaps even more impressive is the spread between Brent (geopolitical risk premia) and WTI (domestic 'over'-supply) is now well over $9 - the highest since March 2015...