The biggest weekly drop in U.S. crude supplies couldn’t halt the drop in oil prices Wednesday as traders chose to focus on expectations for higher global output.
On Wednesday, the Energy Information Administration reported a 12.6 million-barrel drop in U.S. crude supplies for the week ended July 6. That was more than double the 4.8 million-barrel decline expected by analysts polled by S&P Global Platts and marked the biggest single week increase since September 2016.
But August West Texas Intermediate crude CLQ8, +0.54% still fell $3.73, or 5%, to settle at $70.38 a barrel on the New York Mercantile Exchange, marking the steepest drop in dollar terms since Sept. 1, 2015, according to WSJ Market Data Group, and September Brent crude LCOU8, +1.69% lost $5.46, or 6.9%, to end at $73.40 on ICE Futures Europe.
Analysts cited seven key reasons for oil’s Wednesday demise:
1) Libya exports set to resume
Libya’s state-run National Oil Corp. lifted force majeure on eastern oil ports on Wednesday after the ports were handed back from an armed faction, paving the way for a resumption of full production.
Bjornar Tonhaugen, vice president for oil markets at consultancy Rystad Energy AS, estimated that around 700,000 barrels of oil a day would eventually be returned to the global market from Libya.
2) Possible waivers for U.S. sanctions on Iranian oil
Recent news reports, citing an interview with Sky News Arabia, said U.S. Secretary of State Mike Pompeo suggested he will issue waivers for U.S. sanctions on Iranian oil.
3) U.S.-China trade dispute
The White House said it would assess 10% tariffs on a further $200 billion in Chinese goods, deepening the dispute with Beijing, fueling further concerns that worsening tensions between the U.S. and China will hurt the global economy, and demand for oil.
4) U.S. dollar strength
The U.S. dollar strengthened Wednesday as Trump’s protectionist trade stance lured investors to the perceived safety of the greenback.
The ICE U.S. Dollar Index DXY, +0.07% was up 0.6% at 94.71, trading at a more than one-week high. As oil is pegged to the dollar, a stronger greenback usually doesn’t bode well for oil buyers using other currencies.
5) Saudi Arabia was raising output before the OPEC meeting
Saudi Arabia’s crude-oil production rose to 10.42 million barrels a day in June, up 405,400 barrels a day from May, according to a monthly report from the Organization of the Petroleum Exporting Countries released Wednesday.
6) EIA sees U.S. crude output nearing 12 million barrels a day next year
U.S. crude-oil production is set to average 11.8 million barrels a day in 2019, the EIA said in its monthly short-term report published Tuesday. That would top the previous record of 9.6 million barrels a day set in 1970.
7) Speculation that the U.S. will pressure Russia to lift production
There are reports that President Donald Trump will “hammer Russia” on raising oil production, said Phil Flynn, senior market analyst at Price Futures Group. The U.S. and Russia are scheduled to hold a summit on July 16 in Helsinki.
