When Brent crude prices dropped to $51.15 this morning—their lowest figure in roughly six months— WTI oil futures followed suit and sank to their lowest level since March of this year, $46.29. Not only have oil futures been hit hard, but RBOB has also tumbled off 6.15cts/gal this morning to $1.7105/gal, a low not seen in over 5 months. Weak Ultra Low Sulfur Diesel prices have also remained around the $1.5650/gallon mark for the majority of the early morning trading session. Why the market deterioration?
Most impactful, and according to a Reuters survey, OPEC reached its highest monthly level of output in recent history this July, and all the while, they have no concrete plan to make room for more Iranian oil, which will cause even more oversupply to the global market. Aforementioned, the global economy has truly started to react to Iran’s nuclear deal. Iran has declared intent to increase production immediately after sanctions are lifted. Combined with reduced manufacturing in the world’s second largest economy, China, and an increase in rig count here in the States, it’s no wonder a recipe for oversupply and weaker demand has cooked up a bearish market. “The Iran deal is not 100 percent done but it’s definitely much, much closer…. We’re running a 2 million-barrels-a-day surplus this year – it’s basically crushing the oil price, and something has to give,” Bjarne Schieldrop of SEB AB said by phone when interviewed by Bloomberg, bringing confirmation that speculation about increased output is showing its effect on global oil prices.
Stateside, the U.S. Dollar index continues to hold high at $97.31 and U.S. rig counts continue to grow, both weighing in on weaker WTI indices. Last week’s Baker Hughes rig counts were +5 to 664 for oil rigs, the increase primarily stemming from the Permian Basin, and -7 to 209 for natural gas.
Here you can see a yearly overview of the U.S. oil rig count. A more refined analysis, no pun intended, is that last week was the second straight week of an increase in rig counts, as well as the 4th time in 5 weeks that the rig count is on the rise.