By June 20, 2017 Read More →

Oil prices: Brent to seven-month lows, US crude to nine-month lows

Oil prices

Oil prices dropped on Tuesday as investors doubt the ability of OPEC to control supply. Statoil photo.

Oil prices down about 2 per cent Tuesday

Oil prices fell about 2 per cent on Tuesday as investors’ concerns about over supply overshadowed news of high compliance with the OPEC supply cut deal.

Brent settled at seven-month lows and US crude dropped to its lowest value since September, 2016.

At the end of the day, Brent traded 89 cents down, landing at $46.02 and US crude futures contract for July, due to expire later on Tuesday, settled down 97 cents to $43.23, the lowest since Sept. 16.

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Both benchmarks are down over 15 per cent since the end of May when OPEC announced it along with other producers, including Russia, had extended its supply cut agreement into March 2018.

“Given the expectation that you’ll see higher production levels in several areas of the world, it’s going to offset all they’re taking off the market,” Gene McGillian, manager of market research at Tradition Energy told Reuters.

OPEC sources told Reuters on Tuesday that the members participating in the deal had reached 106 per cent compliance in May. ┬áBut increased production in Nigeria and Libya, two OPEC members exempted from the pact, meant OPEC’s overall output jumped in May.

Libya’s production rose over 50,000 barrels per day (b/d) to 885,000 b/d after the country’s state-owned oil company settled a dispute with Germany’s Wintershall, according to a Reuters source in Libya.

Exports of Nigeria’s Bonny Light crude are on the rise and are set to reach 226,000 b/d in August, up from 164,000 b/d in July, according to loading programs.

 

 

“The increasing August export program in Nigeria and the jump in Libyan oil output should pressure oil prices further in the short term,” Tamas Varga, senior analyst at London brokerage PVM Oil Associates told Reuters.

“If we get bearish U.S. oil statistics this week, we could see a test of $45 on Brent,” Varga said.

At 4:30 p.m. on Tuesday, the American Petroleum Institute will release its US crude inventory data and on Wednesday morning, the US Energy Information Administration will report its findings on oil inventories.

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Reuters reports initial estimates forecast US crude stocks to have fallen by 2.1 million barrels last week, but gasoline stocks rose by 400,000 barrels.

 

“Recent data points are not encouraging,” Reuters reports Morgan Stanley analysts said in a note to clients. “Identifiable oil inventories – both crude and product in the OECD, China and selected other non-OECD countries – increased at a rate of (about) 1 (million b/d) in Q1.”

Hedge fund managers have turned bearish on the outlook for oil prices as production from countries non participating in the OPEC deal grows and threatens to undermine the effectiveness of the agreement.

An HSBC report said the $1.3 billion Andurand Commodities fund was down by 17.33 per cent for the year by May 31 and the Merchant Commodity Fund dropped by 12.38 per cent.

 

“At the moment sentiment is bearish and traders seem happy to keep selling into every rally,” Fawad Razaqzada, financial markets technical analyst at Forex.com told Reuters.

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