Oil futures fell sharply Monday after a three-day weekend, with weakness attributed to concerns over the decision by the Organization of the Petroleum Exporting Countries and its allies to ease output curbs, along with indications more supply from Iran is making its way to market.
West Texas Intermediate crude for May delivery
the global benchmark, was off $1.57, or 2.4%, at $63.29 a barrel on ICE Futures Europe.
Crude rallied 3% on Thursday after OPEC+ said it had agreed to allow oil production to rise by 350,000 barrels in May, 350,000 barrels in June and by 441,000 barrels in July, with Saudi Arabia gradually rolling back a voluntary cut of 1 million barrels a day that had been in place since January. The rally left WTI up 0.8% for the week, while Brent rose 0.7%. Oil futures were closed for the Good Friday holiday.
Analysts said the rise in output combined with concerns over Chinese import demand may be factors in Monday’s weakness.
The Financial Times reported Sunday that the People’s Bank of China had instructed foreign and domestic lenders to keep loan growth in the first quarter at roughly the same level as last year, if not lower.
“This is not great news as the commodities cycle grows longer in the tooth and oil prices could be reacting adversely to this impulse,” said Stephen Innes, chief global markets strategist at Axi, in a note.
Meanwhile, analysts pointed to signs of increased Iranian crude shipments despite U.S. sanctions, with a Reuters survey indicating Iranian supply rose by 210,000 barrels a day to average 2.3 million barrels a day in March.
Moreover, that comes as the U.S. and Iran prepare to engage in indirect talks aimed at the potential reinstatement of the nuclear agreement.
“If this were to happen, it also increases the possibility that we finally see U.S. sanctions against Iran lifted, allowing for further growth in Iranian oil exports,” said Warren Patterson, head of commodities strategy at ING, in a note.
“However, in our balance sheet we are already allowing for further increases in Iranian supply and assuming 3 million barrels a day of supply by the time we get to 4Q21,” he said. “Despite this increase our balance sheet continues to suggest a drawdown of inventories.”