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Oil prices drop 4% on bets for higher supplies and lower energy demand

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Oil futures fell more than 4% on Monday, with weakness attributed to concerns over the decision of the Organization of the Petroleum Exporting Countries and its allies to ease production brakes and indications of increased supply from Iran are heading to the market.

Upcoming talks, with the United States which could potentially ease sanctions on Iran and possibly return to the nuclear deal, could lead to an increase in the global oil supply, said Tariq Zahir, director member of Tyche Capital Advisors.

Expectations of declining energy demand as COVID-19 cases rise dramatically in India and several other countries, also contributed to the drop in oil prices on Monday, he told MarketWatch.

Crude West Texas Intermediate for delivery in May CL.1,
-4.39%

CLK21,
-4.39%
fell $ 2.80, or 4.6%, to $ 58.65 a barrel on the New York Mercantile Exchange. Brent Jun Brent BRN00,
+ 0.11%

BRNM21,
+ 0.11%,
the global benchmark, lost $ 2.71, or 4.2%, to $ 62.15 a barrel on ICE Futures Europe.

Based on the first few months, the two crude benchmarks suffered their lowest settlements since March 25, according to FactSet data.

Crude rose more than 3% on Thursday after OPEC + said it agreed to allow oil production to increase by 350,000 barrels in May, 350,000 barrels in June and 441,000 barrels in July , with Saudi Arabia phasing out a voluntary 1 million barrels reduction on a day that had been in place since January.

Lily: Why oil prices rebounded after OPEC + said it would gradually increase production

The rally left WTI up 0.8% for the week, while Brent rose 0.7%. Oil futures were closed for the Good Friday holiday.

OPEC + ‘s decision to gradually increase production ran counter to some expectations that the group would take a short-term business-as-usual approach, said Robbie Fraser, head of global research and analysis at Schneider Electric. . It also suggests that members are both confident of a continued upturn in demand and potentially cautious, as U.S. shale appears to be rebounding from the 2020 losses.

Baker Hughes BKR,
-1.47%
On Thursday, the number of active US oil rigs climbed from 13 to 337 for the week, indicating an increase in production ahead.

Analysts said the surge in OPEC + output combined with concerns about demand for Chinese imports could be a factor in Monday’s weakness.

the The Financial Times reported on Sunday that the People’s Bank of China had asked foreign and domestic lenders to keep first-quarter loan growth at about the same level as last year, if not lower.

This is not good news as the commodities cycle is developing for longer and oil prices may react negatively to this impetus, Stephen Innes, chief global markets strategist at Axi, said in a note.

Meanwhile, analysts have pointed to signs of increasing Iranian crude shipments despite US sanctions, with a Reuters investigation indicating Iranian supply increased by 210,000 barrels per day to an average of 2.3 million. barrels per day in March.

Moreover, it comes as the United States and Iran prepare to engage in indirect talks aimed at the potential reinstatement of the nuclear deal.

If that were to happen, it also increases the possibility that we will finally see US sanctions on Iran lifted, allowing further growth in Iranian exports, said Warren Patterson, head of commodities strategy at ING, in a note. .

However, in our balance sheet we already allow further increases in Iranian supply and assume a supply of 3 million barrels per day by 4Q21, he said. Despite this increase, our record continues to suggest a reduction in inventory.

To complete the action on Nymex on Monday, the May RBK21 gasoline contract prices,
-2.69%
fell 3% to $ 1.96 per gallon, while the May HOK21 fuel oil,
-3.14%
threw 3.2% at $ 1.77 per gallon.

Mai NGK21 natural gas,
-4.62%
was $ 2.51 per million British thermal units, down nearly 4.9%.

In a press release Monday, AccuWeather forecasters predicted another busy year in the charts, for the Atlantic hurricane season, which officially begins in June. Still, he expects this season to be a little less hectic than the nonstop season of the 2020s. Cyclonic activity in the Atlantic can disrupt energy production and refining activity in the region.

AccuWeather sees a season of above normal tropical activity in the Atlantic, noting that a normal season is considered to have 14 storms, seven hurricanes and three major hurricanes.

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