Crude Falls as Surplus Seen Persisting Amid Potential Iran Boost

Updated on
OPEC Is Now a Non-Factor in Oil Price: Todd Horwitz

Oil retreated on speculation a global surplus will persist as Iran pledges to boost exports amid unyielding OPEC production.

Investors will increasingly turn their attention to the risk of Iranian shipments adding to global supply after the Organization of Petroleum Exporting Countries decided to maintain its output target, Morgan Stanley said. The nation could double exports within six months of international sanctions being lifted, according to its OPEC representative.

With OPEC pumping the most since 2012, the prospect of increased shipments from Iran could exacerbate the surplus. Iran and world powers are in talks to reach a final nuclear deal by the end of June. U.S. oil production has surged to the highest level in three decades even after U.S. producers idled a record number of rigs.

“If you count the barrels, you’ve got to be pessimistic,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “The world is oversupplied and the oversupplies of crude are still expanding.”

West Texas Intermediate for July delivery fell 99 cents, or 1.7 percent, to end at $58.14 a barrel on the New York Mercantile Exchange. The contract dropped 1.9 percent last week, the first decline since March. The volume of all futures traded was 23 percent below the 100-day average for the time of day.

Brent for July settlement fell 62 cents to $62.69 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $4.55 to WTI.

Iran Supply

“The Iranian situation is a wild card,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “The big question is whether the sanctions are going to be lifted. The market is concerned about more oil coming into the market.”

Iran’s oil exports were reduced to about 1 million barrels a day in mid-2012 following sanctions against its nuclear program. It may start shipping crude to Russia this week as part of an oil-for-goods agreement, Oil Minister Bijan Namdar Zanganeh said at the weekend after OPEC’s meeting Friday.

“Investors will be searching for a catalyst to provide direction for oil prices,” Morgan Stanley analysts including Adam Longson in New York said in a report. World powers including Russia and the U.S. plan to complete talks with Iran by June 30 to end the decade-long impasse over its atomic program.

OPEC, which pumps about 40 percent of the world’s oil, agreed to keep its crude-output quota at 30 million barrels a day on June 5. The 12-member group has exceeded that target every month in the past year, data compiled by Bloomberg showed.

U.S. Drillers

In the U.S., drillers idled more rigs in what’s become the most protracted retreat from American oil fields. The number of machines decreased by four to 642 in the week to Friday, according to Baker Hughes Inc. That’s the lowest level since August 2010.

While drilling has slowed, U.S. production remains at a record. Output averaged 9.59 million barrels a day through May 29, the fastest pace in weekly data compiled by the Energy Information Administration since January 1983.

In China, refiners imported the least crude in 15 months, a slowdown that could worsen the global surplus. Overseas purchases slid to 23.24 million metric tons in May, according to preliminary data released by the General Administration of Customs in Beijing. That’s equivalent to 5.5 million barrels a day, down from a record 7.4 million a day in April.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE