US crude rises 1.2%, settling at $65.52, shrugging off report US asked OPEC to raise supply

Key Points
  • Oil whittled away at losses throughout much of the session after Brent crude futures hit their lowest in nearly a month on Tuesday.
  • The U.S. government had asked Saudi Arabia and other major exporters to increase oil output, Bloomberg News reported.
  • The request was widely known among oil market watchers, but the Bloomberg report "puts some more meat on the story," said Again Capital's John Kilduff.
President Donald Trump welcomes Saudi Arabia's Crown Prince Mohammed bin Salman in the Oval Office at the White House in Washington, U.S. March 20, 2018.
Jonathan Ernst | Reuters

Oil prices clawed back gains on Tuesday after Brent crude hit its lowest in close to a month following a report that the U.S. government had asked Saudi Arabia and other major exporters to increase oil output.

U.S. West Texas Intermediate shrugged off the report, ending Tuesday's session up 77 cents, or 1.2 percent, at $65.52, rallying from a nearly two-month low of $64.22 earlier in the session.

Brent crude futures were up 5 cents to $75.34 a barrel by 2:23 p.m. ET, climbing back from a session low of $73.81. The contract fell 2 percent the previous day.

The U.S. government has unofficially asked Saudi Arabia and some other OPEC producers to raise oil output, three OPEC and industry sources said, although it has not requested a specific figure.

Earlier on Tuesday, Bloomberg reported that the U.S. government had asked them to increase oil production by about 1 million barrels per day (bpd).

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The U.S. request was widely known among oil market watchers. Treasury Secretary Steve Mnuchin told reporters last month that the United States held discussions with "various parties" to pump more to offset a drop in Iranian exports due to renewed U.S. sanctions.

Still, the Bloomberg report on Tuesday nudged Brent prices lower in early morning trade.

"This still seems to put more bones on the skeleton, if you will," John Kilduff, founding partner at energy hedge fund Again Capital, told CNBC. "This puts some more meat on the story."

Some market participants were "a little bit slow putting the pieces together," Kilduff said, but the Trump administration appears to be leveraging the goodwill it built with the Saudis after pulling out of the Iran nuclear deal and restoring sanctions against Tehran, Saudi Arabia's chief regional enemy.

The request comes after U.S. retail gasoline prices surged to their highest in more than three years and President Donald Trump publicly complained about OPEC policy and rising oil prices.

Sanctions on Iran's crude exports displaced more than 1 million bpd from global markets under President Barack Obama, who marshaled international support for the penalties. However, many risk analysts and sanctions experts believe Trump's campaign will have less bite because Europe, China and other major crude consumers do not support them.

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"With the midterm elections coming up, obviously he wants lower gasoline prices, but at the same time, he's alienating himself from the rest of the world ... so is anybody, apart from Saudi Arabia, maybe going to listen, or comply or cooperate?" PVM Oil Associates strategist Tamas Varga said.

"This seems to be an intervention in OPEC's supply policy ...(the U.S.) walks away from the Iran (nuclear) deal, which pushes up oil prices and less than a month later, demands producers raise production ... this story is Trump-esque."

The Organization of the Petroleum Exporting Countries meets in Vienna on June 22 to decide whether the group and non-OPEC producers, including Russia, should raise output to make up for any supply shortfall from Iran and Venezuela.

Saudi Arabia and Russia were already discussing raising OPEC and non-OPEC oil output by around 1 million bpd, sources familiar with the matter said on May 25. Global oil supply has tightened with the OPEC-led production cuts that began in early 2017.

"(The output decision) is going to be the main event of the month and the main input for the second half of the year, so any change in OPEC policy is a big event," Petromatrix strategist Olivier Jakob said.

— CNBC's Tom DiChristopher contributed to this report.