Crude oil prices plunged almost 4% during Monday’s trade, as Iraq is creating cracks in the wall of production cut agreement between 24 countries. Oil prices tumbled sharply after Iraq reported record exports from the southern Basra ports. Iraq, the second-largest OPEC producers, exported 3.53 million barrels of oil from the southern Basra ports in the last month.
However, Iraq’s oil ministry emphasized that the record level of exports from the southern Basra ports would not disturb their production cut plan to stand by the output cut agreement. However, traders are raising their concerns over the record level of production in the last month of FY2016.
In addition, increased exports from Iran from its oil held at tankers at sea was also weighing on traders’ sentiment. 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.
Consequently, U.S. crude oil declined by $2.03 a barrel on Monday to settle at around $51.96 a barrel, while Brent crude oil plunged $2.16 to settle at $54.94 a barrel.
Increasing U.S. oil production is also hindering the oil price rally, as North American producers are generating stronger-than-expected crude oil volumes. North American oil production increased nearly 4% in the last six months and its oil rig counts increased to the highest level in the last thirteen months, indicating a considerable production growth potential in the coming months.
However, in the short-term, crude oil prices are likely to get solid fundamental support through production cuts from big producers, including Russia and Saudi Arabia. Russia, the largest non-OPEC producer, lowered its output by 100,000 barrels a day in the first week of this year. In addition, lower supplies from Saudi Arabia and other Gulf states in the first quarter of this year will provide fundamental support to oil prices in the short-term.