*Osama Suleiman from Vienna
Oil prices hit its biggest daily drop in two weeks yesterday as expectations increased that the Organization of the Petroleum Exporting Countries (OPEC) would end a supply cut agreement in place since the beginning of 2017 due to concerns about supplies from Venezuela and Iran.
Brent crude futures fell $ 1.08 to $ 78.72 a barrel, the largest daily drop in global benchmark crude since May 8. The US crude futures fell 86 cents to $ 70.98 a barrel.
Sources at OPEC and the oil sector said that at the June 22 meeting in Vienna, the Organization might decide to increase oil production to compensate for the decline in supply from Iran and Venezuela amid Washington's concerns about a rise in crude prices.
Venezuela's output is falling because of an economic crisis, while Iranian production is threatened by the US sanctions.
OPEC has agreed with some major oil producers from outside to cut oil production 1.8 million barrels a day to support oil prices and get rid of the oversupply.
Russian Energy Minister Alexander Novak will hold a meeting with Russian oil companies to discuss an agreement to reduce crude production between OPEC and non-OPEC countries.
"The meeting may take place next week or the week after that," Novak said at an economic forum in St. Petersburg.
Russia and Saudi Arabia have a common position on the future of the global oil production cut-off agreement. The Russian energy minister said that Russia's Lukoil said the agreement should remain in place, but needs to be amended.
Some market participants expressed concern about a possible oil shortage as the production fell in Venezuela and after the US President Donald Trump announced his country's withdrawal from the nuclear deal signed with Iran.
Novak said, "OPEC and non-member countries intend to keep the oil agreement in place at the moment."
But he added, "the restrictions on oil production may be slightly mitigated if OPEC and the independent think that the oil market was balanced in June." He emphasized that the geopolitical risks, led by the US withdrawal from the Iran agreement, added between five and seven dollars to the price of barrels Oil.
The report "Petroleum Economist" stated that that Russia has no plans to join the Organization of Petroleum Exporting Countries (OPEC).
But the Kremlin is considering a range of alternatives and other forms of long-term cooperation with OPEC, according to Russian Energy Minister Alexander Novak.
The international report said that Novak strongly supports plans for indefinite cooperation with OPEC. However, as some Moscow observers have noted, Russian's recognition of the need to rearrange matters may also be a tacit recognition that the current arrangement is over, having fulfilled its objectives at the current stage.
Russian production is still well above the level agreed upon in December 2016. Producers have large expansion plans despite a commitment to cut production until the end of the period by the end of this year.
The report pointed out that the talk that is currently taking place before the OPEC meeting in June in Vienna is focused on the importance of working to transform the alliance signed by OPEC with Russia to a long-term agreement with the mechanisms, and all the details and special arrangements.
"The positions of Russian companies are somewhat different from those of governments," it said.
It noted that after more than a year of restraint in the production of Russian companies, some of Russia's largest producers have already adopted new plans to accelerate growth and increase new large investments.
"The US sanctions on Iran are a major blow to the Iranian economy," David Ledesma, an analyst at South-court Ltd, said, "It will certainly have a negative effect on the level of oil exports and the role of Gulf producers will be greater in compensating these vast supplies, which are under-supplied by the world. "
He pointed out that Tehran is trying to deny this and hopes that the efforts of the European Union to succeed in trying to save the agreement as betting on the keenness of "OPEC" to cohesion among members and not to take any decisions without consensus producers and looking for strong assistance from the European Union to maintain the level of current oil exports.
But most forecasts suggest that many things will change over about the Iranian production after the six-month deadline and the return of sanctions, and in the light of concerns from international companies to continue to invest in Iran.
Moreover, Arturas Vivras, investment director of "Victoria Bank" in the State of Moldova, explained to the "Economist" that Russia is a producer who plans for large increases in production under pressure from the Russian companies.
He pointed out that the next meeting of producers may witness amendments allowing the increase of production in order to compensate for the severe shortage of supply because of the failure of many producers, led by Venezuela, Iran, Angola, Nigeria and others.
"The producers' meeting next month will be crucial as it comes under a lot of heated files, especially the return of sanctions on Iran and Venezuela, and how this affects the stability of supply and the balance of the market," he added.
He noted that the need to stick to production reduction policies that should be discussed in light of the changing market conditions.
In addition, Gulmira Rzayeva, a senior researcher at the Strategic Energy Center of Azerbaijan,says to the Economist, "Some have speculated that the US production can play a role in stabilizing the market as a swing product that activates with price growth and calms down with weak prices, to stay around $ 50 or $ 60 a barrel.
But the reality of the market revealed the weakness of the ability of the US production to play this role in the light of the bottlenecks currently experienced in exchange for the broad and profound impact of the geopolitical factors in the market."
"Expectations launched by Bank of America over $ 100 a barrel by the middle of next year have deepened concern, especially for consumers who see this level as a disruptive and burdensome demand for the economies of consumer countries, and in the forefront of these India, which is still dependent on crude oil as a component most of the mix of energy," said Rzayeva.
