An oil well is seen near Denver, Colorado. Picture: Reuters
An oil well is seen near Denver, Colorado. Picture: Reuters

Singapore — Oil prices fell on Thursday as Iran signalled it could be won over to a small rise in Opec crude output, potentially paving the way for the producer cartel to agree a supply increase during a meeting on Friday.

However, prices were prevented from dropping further by robust US fuel demand seen in record refinery runs, strong travel data and a large decline in crude inventories.

Brent crude futures were at $74.33 a barrel at 4.2am6 GMT, down 41c, or 0.55%, from their last close.

US West Texas Intermediate (WTI) crude futures were at $65.50 a barrel, down 21c, or 0.3%. Iran, a major supplier within Opec, signalled on Wednesday it could agree on a small increase in the group’s output during a meeting to be held at Opec’s headquarters in Vienna on June 22 together with non-Opec member but top producer Russia.

"There appears to be an air of confidence that this deal will move through," said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

"We expect Opec and Russia to gradually add supplies back to the market by next year, mostly offsetting the almost 1-million barrels a day supply disruption in Venezuela," Barclays bank said.

Tehran had previously resisted pressure by Opec’s de-facto leader Saudi Arabia to raise output.

Even with Iran appearing to fall in line, analysts do not expect a harmonious Opec meeting.

"Our expectations are for a tense, discordant and highly geopolitical OPEC [plus] meeting," said Japan’s Mitsubishi UFJ Financial Group in a note to clients.

Opec, together with other key producers including Russia, started withholding output in 2017 to prop up prices, but a tightening market in 2018 led to calls by major consumers for more supplies.

In a sign of strong demand, US refineries processed a seasonal record of 17.7-million barrels a day of crude oil last week, according to data from the Energy Information Administration (EIA) said on Wednesday.

This comes as a record 46.9-million Americans are expected to travel during the upcoming July 4 holiday, according to the American Automobile Association on Thursday, which is seen as a leading indicator for US fuel demand.

Amid healthy consumption, commercial US crude inventories dropped by 5.9-million barrels in the week to June 15, to 426.53 million barrels, the EIA said.

US crude oil production was flat week-on-week, remaining at a record 10.9-million barrels a day.

Beyond the short-term, Barclays said there were headwinds for oil prices.

"Deleveraging in China and a weakening in the narrative around synchronous global economic growth are likely to add headwinds for all commodities," it said.

Reuters

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