Oil futures ended lower for the third month in a row in August to tally their longest streak of monthly losses in more than two years.
Story By Myra P. Saefong ~MarketWatch.com
“The reality of slowing global economic growth setting in has been met with renewed COVID lockdowns in China, continued strength in Russian exports, supply returning from Libya, the potential for Iran to bring more oil to the market amid a renewed JCPOA [ran nuclear deal] agreement, and the strongest U.S. dollar in 20 years,” said Troy Vincent, senior market analyst at DTN.
That’s what has ultimately pulled oil prices lower in August, despite a wide trading range and continued volatility, he told MarketWatch.
On the last day of the month on Wednesday, October West Texas Intermediate crude CLV22, -3.04% fell $2.09, or 2.3%, to settle at $89.55 a barrel on the New York Mercantile Exchange, with prices based on the front month down 9.2% for the month, according to Dow Jones Market Data.
October Brent crude BRNV22, -2.83% settled at $96.49 on its expiration day, down $2.82, or 2.8%, for a monthly loss of 12.3%, on ICE Futures Europe.
Front-month U.S. and global crude price benchmarks logged a third monthly decline in a row, their longest such losing streak since the first half of 2020.
Prices had posted a gain last week, after Saudi Arabian Energy Minister Prince Abdulaziz bin Salman raised the prospect of OPEC+ reducing its oil production in comments to Bloomberg News.
When the Saudis mentioned a production cut, they were “sending several political messages to the Biden administration, China’s leadership, and the rest of the OPEC+ members,” Anas Alhajji, an independent energy expert, told MarketWatch in recent comments, suggesting that they would do what was necessary to keep prices from falling.
Vincent pointed out that the Brent prompt spread moving into contango and sharp declines in gasoline refining margins over the past month should not be overlooked. In contango, prices for future delivery rise above the spot market suggesting there is no short-term supply shortage.
“Assuming these signs of weakness persist, I expect talk of production cuts from Saudi Arabia and OPEC to grow louder in the coming days,” he said.
OPEC+ and Iran
OPEC+, comprised of members of the Organization of the Petroleum Exporting Countries and their allies, led by Russia, will hold their next monthly meeting on Monday.
The market is “too volatile to tell” what OPEC+ will do on Sept. 5, said Alhajji, who’s also managing partner at Energy Outlook Advisors LLC. Still, “staying the course looks the best option for now, with hints for future cuts.”
He also said the next monthly oil report from OPEC is important to watch for hints on production plans. That will be released on Sept. 13.
Meanwhile, a “Biden-Iran deal cannot be overlooked here, said Alhajji, referring to the potential for a nuclear agreement between Iran and world powers that would lead the West to ease sanctions on Tehran, allowing more oil to flow into the global market.
U.S. oil reserve
The release of oil from the U.S. Strategic Petroleum Reserve is among the reasons for the recent weakness in oil prices, said Tariq Zahir, managing member at Tyche Capital Advisors.
Previously announced sales from the U.S. Strategic Petroleum Reserve have pulled down stocks in the reserve to 450 million barrels for the week ended Aug. 26 — the lowest since 1984, according to data from the Energy Information Administration.
The White House announced in late March the planned release of one million barrels a day for six months, to total 180 million barrels, from the reserve to help ease oil and gasoline prices.
The release would bring the SPR down to 390 million barrels by November, said Bernard Drury, CEO of hedge fund Drury Capital.
As European Union sanctions against Russia oil imports increase to 90% in December, there’s a “risk of rising [oil] prices and Europe will turn to the U.S. for some replacement supplies, he says. In the face of this “demand and imminent mid-term elections in the U.S., “I’d expect more sales from the SPR to be announced.”
Still, while several bearish factors have led to the recent oil weakness, prices may soon “consolidate from here and start their upward track again in the days and weeks ahead,” following months of declines, said Zahir.