Oil prices down amid rising rig count, soft US economic data

Oil prices plummeted Monday as market expected crude production from the Organization of Petroleum Exporting Countries (OPEC) hit record high in July.

In the U.S., the biggest oil consumer globally, crude inventories probably shrank by 1.63 million barrels through July 31, according to the median estimate in a Bloomberg survey of eight analysts before an Energy Information Administration report Wednesday.

And a likely deal to lift sanctions on Iran and allow its huge oil reserves to return to markets, has led many analysts to trim their oil price forecasts to reflect deepening oversupply.

Elsewhere, U.S. oil futures fell to the lowest level in more than four months on Friday, after data showed that rigs drilling for oil in the U.S. rose last week, underlining concerns over robust domestic production. But oil prices on the New York Mercantile Exchange are trading a tad below $46 per barrel.

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Oil prices tumbled on Monday (Aug 3), with Brent crude tumbling about five per cent, after new data showed weakening US and Chinese manufacturing and amid worries about the global supply glut.

Brent fell 18 percent in July, while US crude’s 21 percent decline was its biggest monthly decline since the 2008 financial crisis.

Crude slid into a bear market last month, joining a broader slide in raw materials amid expanding supplies and signs of slower growth in China.

Prices fell by US$1.61 a barrel, down 2% to US$45.97.

Brent’s premium to WTI, which traded as wide as $13 a barrel, as recently as March, sank to as low $2.65 a barrel in early June.

“There is still very, very large amounts of Opec oil, particularly coming out from Iraq where production has exceeded over 4 million barrels per day for two months in a row”. The increased production has put a downward pressure on global crude prices.

“We don’t expect (OPEC) to announce any cuts given their strategy to maintain their market share and allowing markets to balance by themselves”.

Sanjeev Gupta, head of the Asia-Pacific oil and gas practice at business consultancy firm EY, said the upcoming release of key US and European economic data “will set the tone for crude oil prices” this week. “But there are very good reasons to think neither is going to continue pushing higher and, actually in the case of Saudi Arabia, they could well decide to ramp back down, both seasonally once we come out of summer, but also if they see non-OPEC producers responding”, Energy Aspects’ Mallinson said.