Oil falls as Saudi output rises to compensate for disruptions

Japanese Prime Minister Shinzo Abe left shakes hands with Iranian President Hassan Rouhani

"However, the Saudis must exercise care in setting OSPs as higher prices may entice buyers like China to consider Iran imports".

US President Donald Trump (center R) holds a lunch meeting with Saudi Arabia's Crown Prince Mohammed bin Salman (center L), and members of his delegation.

'King Salman affirmed that the Kingdom maintains a two million barrel per day spare capacity, which it will prudently use if and when necessary to ensure market balance, ' read the statement.

The White House says Saudi Arabia could raise oil production to make up for any shortfall.

Saudi Arabia, which pumped 10.03 million barrels daily in May, could tap some of its two million barrels a day of unused production capacity to stabilize markets.

"The Trump support base is probably the part of the US electorate that will be the most sensitive to an increase in USA gasoline prices", Halff said.

Hook declined to say if the kingdom can offer that additional supply, but the U.S. is "working to minimize disruptions to the global market", Hook said.

"The reasons why crude is reasonably strong at the moment is there is very good demand growth out there and over the last year-and-a-half there has been compliance with the reduced production by Opec and non-Opec members that has cut 1.8m barrels a day from the supply side of the equation", he said.

Foreign ministers from the five remaining signatories of a nuclear deal between Tehran and world powers will meet Iranian officials in Vienna to discuss how to keep the accord alive after the US withdrawal from the pact.

The Trump administration seems determined to elbow out most Iranian oil from markets by November 4.

Saudi Arabia now produces some 10 million barrels of crude oil each day.

Under the "reduction of production agreement" discussed, the average level of commitment to the production deal enacted in 2017 will be reduced from 147 per cent in May this year to 100 per cent from July 1, equivalent to an increase of about one million barrels per day, SPA reported.

"Further declines in USA crude oil inventories and the significant outage in Libyan oil supply are helping to keep a floor under the market", said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.

Oil prices dropped on Monday as supplies from Saudi Arabia and Russian Federation increased and the market continued to absorb the impact of US President Donald Trump's weekend tweets - although analysts expect the decline to be short-lived.

"More oil in the market has to be bearish", Mills said.

Also earlier on June, US officials visited Japan to urge Tokyo to find an alternative oil supplier to Iran. The two main importers of Iranian crude are China and India; both of whom import around 400,000 BPD now.

The world's biggest crude exporter is preparing to ramp up oil production, possibly by as much as two million barrels per day, amid USA sanctions on Iran.

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