LONDON: Oil prices dropped on Monday as supplies from Saudi Arabia and Russia increased and the market continued to absorb the impact of US President Donald Trump’s weekend tweets — although analysts expect the decline to be short-lived.
Brent crude oil fell to $77.82 a barrel on Monday, a drop of $1.41, while WTI dropped by 43 cents to $73.72 as of 4:42 p.m. GMT.
The drop is in contrast to the strong growth in oil prices seen last week as prices started to nudge close to $80 per barrel.
Yet President Donald Trump’s social media posts on Saturday helped unsettle the market when he tweeted that Saudi Arabia had agreed to pump more oil, “maybe up to 2,000,000 barrels,” the tweet read, presumably meaning barrels a day.
This increase was needed to cope with the “turmoil and dysfunction in Iran and Venezuela,” Trump said, referring to US plans to impose new sanctions on Iran and low oil production in the South American country.
The White House later backtracked on the president’s tweet, while Saudi Arabia did not confirm Trump’s comments.
Oil prices have been rising despite OPEC and Russia agreeing to increase production by 1 million barrels per day from the start of this month. An increase in global production would typically be expected to ease prices.
According to a Reuters survey, Saudi Arabia’s output is up by 700,000 barrels per day from May, while Russian output is up to 11.06 million barrels per day in June from 10.97 million barrels per day in May, according to the Russian Energy Ministry, cited by Reuters.
“The ‘OPEC+’ agreement fell short of what was expected to render a bearish signal to the market,” Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London, said in an email.
“It is becoming increasingly clear that Saudi Arabia and Russia will struggle to compensate for potential losses in oil production from the likes of Venezuela, Iran and Libya.”
Despite Monday’s drop in oil prices, many analysts see oil prices likely to resume their upward climb, given a range of geopolitical factors.
Turmoil in Libya has continued this week, with oil exports from Libya’s eastern ports of Al-Hariga and Zuwetina suspended on Monday due to ports being taken over by the Libyan National Army headed by Khalifa Haftar, according to Reuters reports.
A similar situation occurred last month with two other ports and the National Oil Company has confirmed that the blockages are cutting oil production by 850,000 barrels per day, further tightening global supply.
“There is a strong suspicion that geopolitical risk factors have played a significant role behind oil’s aggressive appreciation,” said Lukman Otunuga, research analyst at FXTM, in an email to Arab News.
“Falling production from Venezuela and an expected decline in supply from Iran after US sanctions have fueled speculation of tighter global supply.”
An analyst note from JBC Energy on July 2 forecast that the oil price could rise as high as $100.
“Our view is clear: The stronger the implementation and enforcement of a zero Iranian export scenario, the higher the oil price will go, with $100 per barrel crude a distinct possibility,” it said.
Carsten Fritsch, senior commodity analyst at Commerzbank, also said in a note that “any price-dampening effect” of a potential further increase in Saudi Arabian production — as proposed by Trump — “would only be short-lived.”
“As soon as market participants realize that there is no more scope for further production increases, prices will continue to rise — and will do so noticeably,” he said.
FXTM’s Otunuga took a more bearish stance on the direction of oil prices.
“Although further upside on oil may be witnessed in the near term, the prospect of higher OPEC production may create headwinds for bulls down the road,” he told Arab News.
“It must be kept in mind that US shale production has surged to record levels, while demand remains at risk of falling amid global trade tensions.
“With the oversupply fears still lingering in the background, rising production from OPEC+1 and US shale, plus trade war fears, could negatively impact oil prices.”
The slump in oil prices also hit Saudi stocks on Monday, with the Tadawul index falling 0.8 percent, and the Dubai index dropping 1.2 percent.