Oil Futures Drop on Oversupply Concerns

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange extended losses Thursday, weighed down by growing concern over potential easing of U.S. sanctions on Iranian crude oil exports. Meanwhile, the Organization of the Petroleum Exporting Countries offered no signals of further production cuts through the end of the year.

NYMEX October West Texas Intermediate futures dropped $0.66 to settle at a 1 1/2-week low of $55.09 per barrel (bbl), while the ICE November Brent contract shed $0.43 to end the session at a $60.38 bbl settlement. NYMEX October ULSD contract followed oil futures lower to settle down 1.81 cents at $1.8851 gallon, while the October RBOB contract declined 1.69 cents to a $1.5530 gallon settlement.

The crude contracts pulled back from Tuesday's multi-week highs as market sentiment quickly turned bearish on the prospect of increased oil supply in global markets from Iran should the Trump administration lift sanctions on the Islamic Republic's crude exports.

Oil markets have struggled in 2019 to regain a supply-demand balance against weakening global economic growth and booming shale production in North America, prompting OPEC members and 10 allied nations to limit their available supplies. Analysts suggest a speedy removal of sanctions on Iran could create a global supply glut if other OPEC members and Russia fail to make deeper cuts in their supply agreement which runs through the first quarter 2020.

Reports estimate Iran crude oil exports at about 200,000 barrels per day (bpd), down from 2.5 million bpd in May 2018 when the United States pulled out of the nuclear accord, triggering the re-imposition of economic sanctions. A resumption of Iranian crude exports could crush prices, sending the key crude grades below $40 per bbl, while a global supply surplus could rise to more than 2 million bpd as early as the end of this year.

Oil futures reversed lower midweek after reports emerged that U.S. President Donald Trump discussed easing sanctions on Iran in a bid to facilitate a meeting with Iranian President Hassan Rouhani on the sidelines of United Nations General Assembly in New York next week. Reports indicate French President Emmanuel Macron is acting as a go between with Trump and the Iranian president.

Thursday morning, the Joint Ministerial Monitoring Committee -- a technical committee for OPEC+ monitoring compliance with the production agreement and providing analysis and recommendations for the producer group -- concluded with no indications they are considering deeper production cuts to boost prices. Producers out of compliance with the accord, namely Iraq and Nigeria, pledged to make deeper cuts this month and in October.

Thursday's JMMC meeting was the first with Prince Abdulaziz bin-Salman as the Saudi energy minister, which was announced Sunday. The prince, the first royal to assume the ministerial position and widely respected, said OPEC+ would maintain the current production agreement, seeking "unity and cohesion" among producing nations.

Liubov Georges can be reached at liubov.georges@dtn.com

(BAS)