Oil prices pare early session gains after Flynn plea

Oil prices originally buoyed by OPEC deal announcement

Oil prices pared early gains on Friday as concerns about President Donald Trump’s exposure to Robert Mueller’s probe into Russian meddling in the US election campaign last year impacted the market.

Wall Street’s main indexes all fell by over 1 per cent following an ABC report that said Trump’s former national security adviser, Michael Flynn, has pleaded guilty to charges of lying to the FBI and has agreed to cooperate with the Mueller investigation.

Prior to news of Flynn’s arrest, oil prices were nearing their highest levels since the summer of 2015.

By 2:26 p.m. EST, US WTI was up 85 cents to $58.25/barrel and benchmark Brent had risen 93 cents to $63.56/barrel. The Canadian Crude Index was up 93 cents to $43.83.

“Oil prices have pared earlier gains in tandem with losses seen in the equity market partly because news regarding Michael Flynn,” Abhishek Kumar, Senior Energy Analyst at Interfax Energy’s Global Gas Analytics told Reuters.

Both Brent and US WTI were on track to decline by about 1 per cent this week.

On Thursday, OPEC announced it along with other participants in the OPEC supply cut deal agreed to keep current output limits of 1.8 million barrels per day (b/d) in place until the end of 2018.

The deal has so far been effective in cutting the global oversupply of crude by about 50 per cent.

Participants in the deal agreed they will be able to exit the pact should the oil market overheat.

According to Reuters, Russia pushed for a clear exit strategy from the agreement so the market does not shift into deficit too soon. This would rally oil prices and encourage even more US shale output.

The Russian government is also concerned that higher oil prices will boost the rouble, making Russian exports more expensive which would impact the economy.

“It leaves a question mark about the second half (of 2018) and about the commitment of Russian oil companies, which will be price dependent,” Petromatrix strategist Olivier Jakob told Reuters.

Vagit Alekperov, the chief executive at Lukoil told Reuters he would like to see oil prices stabilize at current levels, in the $60-65/barrel range.

Higher oil prices would boost US production, which has already undermined the impact of the OPEC agreement.  More US crude is being sold in the highly sought after Asian market.

Vessel-tracking data shows about 135,000 b/d of US crude exports in the first 10 months of 2017.  And that is expected to rise to 242,000 b/d in November and 379,000 b/d in December.

As well, other producers, including Canada and Brazil will be looking to boost their output as oil prices continue to rise.

On Friday, Baker Hughes reported the US oil rig count rose by two to 749 this past week.  At this time last year, there were 477 oil rigs in operation.  In Canada, the oil rig count rose by four to 111, up by 22 over this time last year.