A view of the main deck of Tullow Oil’s floating production, storage and offloading vessel. Picture: REUTERS
A view of the main deck of Tullow Oil’s floating production, storage and offloading vessel. Picture: REUTERS

Tokyo/London — Oil prices halted their rally on Monday with Brent futures falling below $71 a barrel on signals that Russia may exit production cuts.

Losses were limited by a tightening of global supplies, as output has fallen in Iran and Venezuela amid signs the US will further toughen sanctions on those two Opec producers.

Brent crude futures were at $70.95 a barrel at 10.50am GMT, down 60c, or 0.85%, having hit their highest since November 12 on Friday at $71.87.

US West Texas Intermediate crude futures were at $63.30 a barrel, down 59c or 0.93%.

“I would expect oil to trade in a relatively tight band around $70 for the time being,” said Virendra Chauhan, oil analyst at Energy Aspects in Singapore, pointing to differing signs from the US and Opec on future supply.

“Leading edge indicators on US supply suggest activity levels are stepping up, which is supportive for strong production growth in the second half,” Chauhan said.

But at the same time, “murmurings from various ministers of the Opec-plus pact suggest supply from the group will not be ramped up pre-emptively as per last summer”, he said.

Oil cartel Opec and its allies meet in June to decide whether to continue withholding supply. Opec, Russia and other producers are reducing output by 1.2-million barrels a day from January 1 for six months.

Opec’s de facto leader, Saudi Arabia, is considered keen to keep cutting, but sources within the group said it could raise output from July if disruptions continue elsewhere.

Russian finance minister Anton Siluanov said at the weekend that Russia and Opec may decide to boost production to fight for market share with the US, but this would push oil as low as $40 a barrel.

US energy companies last week increased the number of oil rigs operating for a second consecutive week.

On the bullish side, the head of Libya’s National Oil Corp warned on Friday that renewed fighting could wipe out crude production in the country.

Production has been also falling steeply in Venezuela due to US sanctions. Iranian output is expected to suffer when the US tightens sanctions on Tehran in May.

“We see a risk of a spike in oil prices by year-end,” said Bank of America Merrill Lynch, citing a weakening dollar and a surge in distillates demand due to rule changes for marine fuels.