Oil prices drop as supplies increase

Russia & Saudi Arabia to talk oil on World Cup sidelines as teams meet on pitch

Russia & Saudi Arabia to talk oil on World Cup sidelines as teams meet on pitch

A pump jack lifts oil out of a well, during a sandstorm in Midland, Texas, U.S., April 13, 2018.

Investors are looking for signs of whether OPEC will reach a consensus on boosting production, with the group set for a fractious meeting in Vienna next week.

OPEC and Russian Federation decided together in 2016 to cut their supply in order to push prices up following a crash in prices induced by a global crude production glut.

"More oil from OPEC+ is the base case", said Bjarne Schieldrop, analyst at Swedish bank SEB.

However, OPEC's president, Suhail Al Mazrouei, said on Tuesday that the USA has not asked the group to increase oil production in the wake of political unrest in oil-rich Venezuela and US sanctions on Iran.

Last week, the American Petroleum Institute (API) reported a build of 2.028 million barrels of crude oil.

But the outlook for the oil market in the second half of this year is uncertain, analysts say, and OPEC argues there are downside risks to global demand. "Unofficial sources have said Russian Federation will propose to return production back to the October 2016 (level), i.e. removing the cap altogether over a period of three months".

"The prospect of easing supply curbs from OPEC-led producers continues to be reflected in oil's overall depressed price", said Lukman Otunuga, analyst at futures brokerage FXTM.

US crude oil inventories rose by 830,000 barrels in the week to June 8, to 433.7 million, the American Petroleum Institute said on Tuesday.

Rising US stocks are in part a result of the surge in US crude oil production, which has jumped by nearly a third in the last two years to a record 10.8 million barrels per day (bpd).

"To make up for the losses, we estimate that Middle East OPEC countries could increase production in fairly short order by about 1.1 mb/d and there could be more output from Russian Federation on top of the increase already built into our 2019 non-OPEC supply numbers", it added.

"With rising production from US shale adding to oil's woes and reviving oversupply concerns, further downside could be a possibility in the short to medium term", Otunuga said.

The U.S. Energy Information Administration report on crude oil inventories is due to be released on Wednesday at 10:30am EDT.