U.S. crude drops 2.7%, as market braces for OPEC output increase

Oil prices fell sharply Friday, as Saudi Arabia and Russia indicated they were prepared to increase output ahead of an OPEC meeting in Vienna June 22-23.

Crude futures fell in tandem with the U.S. stock market. The Dow Jones Industrial Average plunged more than 200 points after President Trump said he will soon place tariffs on $50 billion of Chinese exports, raising fears of a broadening trade war.

U.S. West Texas Intermediate crude ended Friday's session down $1.83, or 2.7%, to $65.06 a barrel, Kallanish Energy reports. World benchmark Brent crude was down $2.46, or 3.2%, at $73.48/Bbl by 2:28 p.m. ET, after falling 80 cents on Thursday.

Both contracts hit 3½-year highs in May, but have since drifted lower as U.S. crude production has risen and as OPEC, Russia and other allies look poised to increase output in their meeting in the Austrian capital later this week.

"We're going into an OPEC meeting where everyone is talking about raising production — the only question is by how much," said Bob Yawger, director, energy at Mizuho in New York, Reuters reported.

Russian Energy Minister Alexander Novak said Thursday after talks with Saudi Energy Minister Khalid al-Falih in Moscow both nations "in principle" supported a gradual increase in production after restricting output for 18 months.

"We in general support this … but specifics we will discuss with the ministers in a week," Novak said, adding that one option would involve gradually raising output by 1.5 million barrels per day (MMBPD), possibly starting on July 1.

Falih offered no specific guidance on what any deal in Vienna could look like, but said: "We will see where we go, but I think we'll come to an agreement that satisfies, most importantly, the market," Reuters reported.

Many analysts expect a rise in output from the meeting. "The switch has been turned on for a supply increase," Olivier Jakob at Swiss oil markets consultancy Petromatrix said, Reuters reported.

Oil prices found some support after attacks shut major Libyan oil ports on last week, slashing production by 240,000 BPD.

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