Oil set for biggest monthly loss in over a year on supply gains

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(July 31): Oil retreated in New York, heading for its biggest monthly loss since March 2017, as some of the supply risks facing the market abated.

West Texas Intermediate futures slipped 1.2%, after climbing 2.1% to surpass US$70 a barrel on Monday. Russia’s oil production reached 11.22 million barrels a day this month as the caps imposed in a pact with OPEC eased, Interfax reported, while data from Kazakhstan’s government showed its output recovered. Meanwhile, President Trump said he’s open to talks with Iran, just as U.S. sanctions on the country’s oil trade take hold.

Crude has declined about 6% this month, as simmering trade tensions between the U.S. and China push prices lower at a time when American shale output continues to surge. Still, falling production in Venezuela, a civil war in Libya and impending American sanctions on Iranian oil have raised fears over a global supply crunch. Barclays Plc has warned of “significant upside risk” for prices, as sanctions begin to bite Iranian exports.

“Prices shed some of yesterday’s gains overnight,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “One factor in this is likely to have been President Trump, who unexpectedly signaled his willingness to meet unconditionally with Iranian President Rouhani.”

WTI crude for September delivery traded at US$69.27 a barrel on the New York Mercantile Exchange, down 86 cents, at 2:11 p.m. London time. If the contract declines by 6% this month, it would be the biggest such drop since March 2017. Total volume traded was about 47% below the 100-day average.

Brent for September settlement, which expires Tuesday, fell 35 cents to US$74.62 a barrel on the London-based ICE Futures Europe exchange. The contract is down almost 6% this month. The more actively-traded October contract lost 47 cents to US$75.08. Global benchmark Brent traded at a US$5.40 premium to September WTI.

Trump on Iran

Trump said Monday he’d meet his Iranian counterpart without preconditions, following a war of words earlier this month. The White House appeared to quickly walk back his comments and signaled the U.S. will end sanctions on Iran, only if the Islamic Republic’s behaviour changes. Secretary of State Michael Pompeo laid out terms for a meeting between the U.S. and Iranian leaders.

Other supply threats continue to support the market. A strike hit production at Total SA’s three oil fields in the North Sea, and concerns remain over Saudi Arabia’s suspension of crude shipments through a key sea-transit route following attacks by Yemeni rebels.

Saudi tankers altered course after the kingdom last week took the extraordinary measure of temporarily halting oil shipments via the Bab el-Mandeb Strait at the southern tip of the Red Sea.

Other oil-market news:

  • Saudi Arabia’s Crown Prince will chair a new government committee for hydrocarbons, the country’s Press Agency reports. 
  • Kazakhstan’s output rose to 1.91 million barrels a day in July, from 1.897 million a day in June, according to Bloomberg calculations based on data from the Energy Ministry and Information-Analytical Centre of Oil and Gas.
  • U.S. inventories are forecast to have fallen by 3 million barrels last week, according to a Bloomberg survey of analysts, before government data due Wednesday.
  • Stockpiles at the Cushing storage hub in Oklahoma decreased 500,000 barrels in the week ended July 27, according to a forecast compiled by Bloomberg. 
  • Consultants JBC Energy estimated Saudi Arabia raised production by 310,000 barrels a day to 10.8 million a day in July.