On word that Russia and Saudi Arabia may increase production levels the prices of crude oil dropped. This reverses an agreement to halt production made between OPEC and their allies. Brent futures lost almost 2% and WTI was down 1.7%.
Reports are that they are increasing production to make up for losses incurred due to the production halt. The market could absorb the increase because Venezuela’s output has collapsed and is not likely to be resuming in the near future. Venezuela is experiencing a financial breakdown and the military has taken over the production of oil. Another major supplier, Iran is about to face a decline in getting crude to market due to US’s sanctions.
The effects of Russia’s and China’s efforts to create an alternate channel for oil distribution is starting to show signs that the traditional oil market is moving to the east. When the Saudis break the ties with the US the petrodollars will be flowing back to the US.