Crude Oil Prices under Pressure amid Increasing Production

After generating positive results last week amid traders’ optimism over the production cut from major producers, including Saudi Arabia and Kuwait, crude oil prices came back under pressure in Monday’s trade, thanks to the threat of increasing Iran’s exports and rising U.S. supplies. Iran started increasing its exports over the last couple of months from oil held in tankers at sea.

Iran sold almost 13 million barrels of crude oil held in tankers at sea, indicating a smart move of enhancing its market share, when fellow producers are slashing their supplies. While Iran’s biggest rivals, including Saudi Arabia and Kuwait, announced production cuts of 485,000 and 131,000 barrels per day respectively for the first quarter this year.

Iran’s strategy of selling oil held at sea could have negative repercussion over the production cut agreements between 24 countries. Brent crude oil prices were trading almost 13 cents lower in Asian trade on Monday from the recent settlement, while U.S. West Texas Intermediate oil prices were trading 20 cents lower from earlier close.

The threat of rising of U.S. production is also weighing on crude oil prices, as traders are realizing that North American producers are making a stronger than expected comeback.

U.S. oil rig counts have increased since summer of the last year. Last week, Baker Hughes reported a 10th straight week of growth in U.S. oil rig counts to the highest level in the last 13 months. U.S. oil production increased mostly at a mid-single digit rate in the last six months, thanks to improving prices and declining break-even points.

U.S. producers have slashed their break-even levels to below $50 a barrel, settling strong footholds to expand volumes at current oil prices. Therefore, U.S. producers are ready to make a strong rebound in the coming days, which could stun the market participants. Several U.S. producers have announced increased spending plans for FY2017 after significant cuts in the last three years.

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Alexander is an analyst for EconomicCalendar.com who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.