Oil prices fell on Monday as the chances of West Asian producers agreeing to curb overproduction appeared to fade, while stubbornly high US output and worries about Asia’s economic outlook also dragged on prices.
Iran, returning to global oil markets after sanctions against it were lifted in January, said it would continue increasing its oil production and exports until it reaches the market position it enjoyed before the imposition of sanctions, according to a media report.
This makes a proposed deal by major producers to restrict ballooning output unlikely as top exporter Saudi Arabia had said last week it would only participate if its rival Iran also took part.
US crude futures were at $36.33 per barrel at 0700 GMT, down 1.25 per cent or 46 cents from their last settlement, while Brent crude was down 1 per cent or 40 cents at $38.27. A global glut has pulled down oil prices by as much as 70 per cent since 2014.
“Macroeconomic concerns and high petroleum inventories are the oil market’s ball and chain and are likely to keep the oil price between the mid-$30s and low $40s in Q2,” Barclays said.
While some analysts expect a recent weakening of the US dollar to spur demand for oil from importers holding other currencies, Morgan Stanley said “negative oil headlines, producer hedging at higher prices and bloated inventories" indicate any upside in prices will be limited.
US oil rig count
Adding to concerns of a global glut is US production remains high despite steep cuts in drilling for new reserves as well as a jump in bankruptcies.
“The US oil rig count dropped further this week, with a total 10 rigs idled,” Goldman Sachs said. “The current rig count implies US production ... would decrease by 705,000 barrels per day yoy (year-on-year) on average in 2016, and by 375,000 barrels per day yoy in 2017,” it added.
So far, US production remains stubbornly high, at over 9 million barrels per day.
Asia’s economic prospects
Despite a pick-up in recent economic data, including from India and China, analysts also poured cold water on hopes that Asia’s economic prospects were improving.
“Asia continues to face a structural growth problem — one that will not be cured in the space of a few, short months,’’ said HSBC’s Frederic Neumann.
Given a growing belief that prices might not recover by much any time soon, hedge funds have cut their net long positions in US crude for the first time in six weeks.
The chief executive of the Abu Dhabi National Oil Company said oil markets would only start to rebalance in 2016 and 2017.