Oil prices slip nearly 2pc as OPEC mulls output hike, US stocks build

NEW YORK: Oil prices fell nearly 2 percent on Thursday after sources said that OPEC may raise output from July if Venezuelan and Iranian supplies fall further and prices keep rallying.

Rising U.S. crude stockpiles also dragged U.S. futures down by more than $1 a barrel. West Texas Intermediate (WTI) crude   fell $1.16 to $63.45 a barrel by 12:34 p.m. EDT (1634 GMT).

Global benchmark Brent was at $70.72 a barrel, down $1.01 from its last close.

"Now there is a suggestion that OPEC may surprise us and raise production pre-emptively if we get a price spike," said Phil Flynn, an analyst at Price Futures Group in Chicago.

The Organization of the Petroleum Exporting Countries may raise oil output from July if Venezuelan and Iranian supply drops further and prices keep rallying, because extending production cuts with Russia and other allies could overtighten the market, sources familiar with the matter said.

Venezuelan crude production has dropped below 1 million barrels per day (bpd) due to U.S. sanctions, the International Energy Agency said on Thursday, even lower than the 960,000 bpd OPEC reported on Wednesday.

Iranian supply could fall further after May if, as many expect, Washington tightens its sanctions against Tehran.

OPEC and its allies led by Russia are due to meet in Vienna on June 25-26 to set their policy.

Overall output from OPEC, which has agreed with allies to withhold 1.2 million bpd of crude from the market since the start of 2019, fell 550,000 bpd in March to 30.1 million bpd, the IEA said.

The agency, which coordinates the energy policies of developed nations, saw oil stocks in industrialised countries fall in February by 21.7 million barrels, putting inventories 16 million barrels above their five-year average.

Market concerns that OPEC could increase output compounded worries that U.S. crude production is rising.

U.S. crude inventories surged by 7 million barrels to a 17-month high of 456.6 million barrels last week, the Energy Information Administration said on Wednesday.

U.S. crude oil production remained at a record 12.2 million bpd, making the United States the world's biggest oil producer ahead of Russia and Saudi Arabia.

The surging production and regional refinery outages have depressed prices of cash grades, putting more pressure on U.S. crude, said Bob Yawger, director of energy futures at Mizuho in New York.

U.S. West Texas Intermediate crude at Midland on Thursday traded at the biggest discount to futures in almost four months after Phillips 66 closed a unit for maintenance at its Borger, Texas refinery, adding to a backlog of barrels as production climbs.

Selling accelerated Thursday morning as U.S. crude dropped below $63.71 a barrel, a technically-significant level at which some funds had stops in place, triggering automatic sales, Yawger said.