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Oil futures settled with a loss of more than 4% on Monday, with weakness attributed to concerns over the decision by the Organization of the Petroleum Exporting Countries and its allies to ease output curbs and indications of more supply from Iran is making its way to market.
Coming talks, with the U.S. possibly easing sanctions on Iran and potentially getting back into the nuclear deal, could lead to an increase the amount of global oil supply, said Tariq Zahir, managing member at Tyche Capital Advisors.
Expectations for lower energy demand as COVID-19 cases rise “dramatically in India and several other countries,” also contributed to the drop in oil prices Monday, he told MarketWatch.
West Texas Intermediate crude for May delivery
CL.1,
CLK21,
fell $2.80, or 4.6%, to settle at $58.65 a barrel on the New York Mercantile Exchange. June Brent crude
BRN00,
BRNM21,
the global benchmark, lost $2.71, or 4.2%, at $62.15 a barrel on ICE Futures Europe.
Based on the front months, both crude benchmarks suffered their lowest settlements since March 25, FactSet data show.
Crude rallied over 3% on Thursday after OPEC+ said it had agreed to allow oil production to rise by 350,000 barrels in May, 350,000 barrels in June and by 441,000 barrels in July, with Saudi Arabia gradually rolling back a voluntary cut of 1 million barrels a day that had been in place since January.
Read: Why oil prices rallied after OPEC+ said it would gradually raise production
The rally left WTI up 0.8% for the week, while Brent rose 0.7%. Oil futures were closed for the Good Friday holiday.
The OPEC+ decision to gradually raise output “was contrary to some expectations that the group would take a status quo approach over the near-term,” said Robbie Fraser, manager, global research & analytics at Schneider Electric. It also “suggests that members are both confident about a continuing demand recovery, and potentially cautious as U.S. shale looks to bounce back from 2020 losses.”
Baker Hughes
BKR,
on Thursday reported that the number of active U.S. oil drilling rigs climbed by 13 to 337 for the week, pointing production increases ahead.
Analysts said the rise in OPEC+ output combined with concerns over Chinese import demand may be factors in Monday’s weakness.
The Financial Times reported Sunday that the People’s Bank of China had instructed foreign and domestic lenders to keep loan growth in the first quarter at roughly the same level as last year, if not lower.
“This is not great news as the commodities cycle grows longer in the tooth and oil prices could be reacting adversely to this impulse,” said Stephen Innes, chief global markets strategist at Axi, in a note.
Meanwhile, analysts pointed to signs of increased Iranian crude shipments despite U.S. sanctions, with a Reuters survey indicating Iranian supply rose by 210,000 barrels a day to average 2.3 million barrels a day in March.
Moreover, that comes as the U.S. and Iran prepare to engage in indirect talks aimed at the potential reinstatement of the nuclear agreement.
“If this were to happen, it also increases the possibility that we finally see U.S. sanctions against Iran lifted, allowing for further growth in Iranian oil exports,” said Warren Patterson, head of commodities strategy at ING, in a note.
“However, in our balance sheet we are already allowing for further increases in Iranian supply and assuming 3 million barrels a day of supply by the time we get to 4Q21,” he said. “Despite this increase our balance sheet continues to suggest a drawdown of inventories.”
Rounding out action on Nymex Monday, prices for the May gasoline contract
RBK21,
fell by 3% to $1.96 a gallon, while May heating oil
HOK21,
shed 3.2% to $1.77 a gallon.
May natural gas
NGK21,
settled at $2.51 per million British thermal units, down nearly 4.9%.
In a press release Monday, forecasters at AccuWeather predicted “another busy year in the cards,” for the Atlantic hurricane season, which officially begins in June. Still, it expects that season to be a “bit less hectic than 2020’s nonstop season.” Hurricane activity in the Atlantic can disrupt energy production and refinery activity in the region.
AccuWeather sees an “above-normal season for tropical activity in the Atlantic,” noting that a “normal season” is considered to have 14 storms, seven hurricanes and three major hurricanes.
