Oil price dropped on Monday primarily for two reasons. The first is that the oil rig count in the United States increased for the fourth week. The second is that the threat of the United States exiting itself from the Iran nuclear agreement has receded somewhat if not completely. Aside from these, hedge funds have also reduced their net-long position in WTI. However, the commodity has advanced for the month of April. As far as India is concerned, oil price fall is a blessing in disguise for the rulers ahead of Karnataka elections in May.
Oil futures in New York dipped one percent on Monday after the American drilling activity data indicated an increase to 825 rigs. However, the commodity recorded a gain of 3.7 percent for the month. Also, the time is running up for American President Donald Trump to decide on the nuclear agreement with Iran. His predecessor, Barrack Obama, has struck a deal with Iran and that will come to an end on May 12. Trump has to decide before that whether to exit the deal or not as France is trying to avoid its withdrawal.
For its part, Organization for Petroleum Exporting Countries (OPEC) indicated that it would trim down its production. This is despite its conclusion that the region has cleared about 97 percent of the excess supply that weighed on oil prices, BloombergQuint reported. The price of oil has reached the levels that were seen in 2014 on different counts. This included Syria conflict, tensions between Saudi Arabia and Yemen rebels. These issues could pose problems in the supply of oils.
Aside from these factors, France President, Emmanuel Macron, had earlier predicted about the possible withdrawal of the United States from Iran nuclear deal. This increased speculation about the possibility of reduced shipments from that country. On the other hand, increasing drilling activities among the riggers in America continued to restrict oil price increase. The OPEC has already indicated that it would not mind extending its production cut to keep oil price stable.
DNA Bank ASA chief oil analyst, Torbjorn Kjus, told Bloomberg that it was quite natural that the rig count was a bearish tone for the oil market. He pointed out that “There’s a lot of profit in the books here for the non-chemicals. You shouldn’t be surprised if there’s a $5 flush out and some profit-taking.”
Below 100-day Average
Crude for June delivery of West Texas Intermediate fell 72 cents at $67.38 a barrel on NYMEX at 11.12 a.m. London time. The total volume traded fell 13 percent from the 100-day average. Last week, the contract dipped 0.4 percent. Similarly, Brent Crude for June settlement fell 86 cents to $73.78 a barrel. However, prices have increased five percent for April.
The global benchmark crude witnessed a premium of $6.40 to June WTI. As far as July contract, which is more active, it was traded at $72.97 a barrel. In China, it is a public holiday. Therefore, Shanghai International Energy Exchange remained closed for trading. Hedge funds have reduced their net-long position by 2.1 percent.