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Oil prices drop on strong US dollar, weak China data

Oil prices

Oil prices fell in volatile trading on Monday. Anadarko photo.

Oil prices down 2 per cent Monday

Oil prices fell by 2 per cent on Monday in volatile trading as the US dollar rose and China posted weak domestic demand data.

Earlier in the day, oil prices rose slightly on concerns over possible reductions in Libya’s crude supply after the country’s National Oil Corporation (NOC) said it is investigating security violations the 270,000 barrel per day (b/d) Sharara field.  Any disruptions at Libya’s largest oil field could cut supplies and reduce OPEC’s output.

But later in the day, oil prices tumbled.  By 1:09 p.m. EDT, Brent crude futures traded at $51.02/barrel, down $1.08 and US WTI traded down 95 cents to $47.87/barrel.

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“It is a strong dollar, concern about China demand, and weak volumes,” Phil Flynn, analyst with Price Futures Group in Chicago told Reuters.

“The US oil rig count is still rising, but more slowly and not enough to make up for the lack of completions and the existing well production decline rate. The slowing rig count will mean that U.S. production will start to level off and drop.”

According to oil service company Baker Hughes, the number of rigs exploring for oil and natural gas in the US dropped by five last week to 949, compared to a year ago when 481 rigs were active.

Houston oilfield services company Baker Hughes said Friday that 768 rigs sought oil and 181 explored for natural gas this week.

According to Reuters, the US dollar rose after the weekend due to the absence of abrasive rhetoric by US President Donald Trump and North Korean leader Kim Jong Un.

Data showed a larger-than-expected drop in refinery runs in China last month, further pressuring oil prices and stoking concerns that the glut of refined products could weaken China’s demand for oil.

According to Bloomberg, China’s oil refining was at its lowest point in three years for the month of July.

An industry consultant told Bloomberg that state refineries in northwest and southern China cut refinery runs to 66.9 per cent and 64.68 per cent of capacity, respectively.

Independent Chinese refiners, known as teapot refiners, operated at around 58.78 per cent.

Maintenance during June and July accounted for some of the decline, however, crude oil output was down by 3 per cent to 3.84 million b/d, the lowest since 2014.

“There will no longer be any significant supply deficit in the second half of the year, so there is hardly likely to be any further inventory reduction,” analysts at Commerzbank said in a note, according to Marketwatch.

American gasoline prices are rising as the average price of a gallon of regular jumped 8 cents to $2.40USD nationally over the past three weeks. The current price is 23 cents above where it was a year ago, but well below where it was in mid-August of 2015, 2014, and 2013.

Industry analyst Trilby Lundberg of the Lundberg Survey told CNBC that the spike results from higher crude oil prices.

 

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