Oil prices fell over one per cent on Monday on waning enthusiasm for crude due to increasing US crude supply. Anadarko photo.
Oil prices pressured by higher US supply
Oil prices fell on Monday, dropping over 1 per cent on investor concerns over rising US production and last week’s sell off by speculators, despite tighter OPEC supply.
By 1 p.m. EDT, benchmark Brent crude futures were down 73 cents to $64.76/barrel and US WTI fell 90 cents to $61.14. The Canadian Crude Index dipped 56 cents to $39.40.
Last week, the US Energy Information Administration reported US crude output rose 86,000 barrels per day (b/d) in the weekending March 2.
“That figure was close to in line with the February average weekly increase of 91,000 [barrels a day] and is still more than four times greater than the pace of production growth in 2017,” Tyler Richey, co-editor of the Sevens Report told Market Watch.
“The market continues to flip back and forth on the idea that increased global demand and a production cut is going to support prices… but U.S. production, and North American production levels in general, is going to negate a lot of the impact of that,” said Gene McGillian, director of market research at Tradition Energy.
Richey agrees “From a fundamental standpoint, that is a material concern as the U.S. oil industry alone could push the global market back into a surplus, which was the reason behind the 2014-2015 bear market in oil.”
According to the Wall Street Journal, the OPEC supply cut pact is under pressure and could split into two camps after a year of unity.
Saudi Arabia and its allies are on one side and are looking for oil prices to recover to $70/barrel or higher. The other faction is led by Iran, which is content with oil prices at around $60/barrel.
On Friday, Baker Hughes reported the US oil rig count fell for the first time in seven weeks. The count dipped by four to 796.
The EIA will issue its April forecast on shale production from seven major shale regions in the US later on Monday.
Late last week, hedge funds and money managers cut their bullish bets on US crude for the first time in three weeks.
“Rising production and inventory in the United States has been reducing fund sentiment since it peaked at the end of January,” ING commodities analysts said in a note.
The market is expected to be driven this week by last week’s US jobs numbers showing an increase of 313,000 jobs, at least until CPI data is released on Tuesday.
Analysts are concerned that a tighter labour market could lead to higher inflation on the side of wages which could trigger the Fed to pick up the pace on its interest rate hikes.