The per-barrel price for West Texas Intermediate (WTI) crude oil slipped by about a dollar in Monday’s futures market to around $52.90. A continuing rise in U.S. drilling rigs and massive sales of stored Iranian oil are responsible for the downturn.
For most of 2016, Iran had about 29.6 million barrels of crude stored on tankers sailing in circles in the Persian Gulf. Since October, Iran has reduced that total to around 16.4 million barrels, according to a report from Reuters. Those 13 million barrels have been sold to China, India, South Korea and European buyers including France and Italy, among others.
Because Iran is exempt from the recently implemented cuts to OPEC production, Iran could continue to produce around 4 million barrels a day and also continue to sell from its floating storage inventory. That undercuts the 1.2 million barrels a day that OPEC has agreed to cut from production for the first six months of 2017.
Iraq, too, has been boosting sales. In December the country exported a record 3.51 million barrels a day from the port of Basra. The Iraqi government has said, however, that it will reduce production by an average of 210,000 barrels a day beginning this month.
We noted in early December that the agreed cuts from OPEC were cuts to production and did not include exports from existing crude inventories.
In the United States, the rig count last week was higher than it has been since mid-December of 2015. U.S. production has reached 8.8 million barrels a day since its low point last summer, but it remains about 9% below its 2015 peak.
While this all contributes to Monday’s slide in crude prices, the month-end data on production from OPEC and other countries that have agreed to cut production will have a more decided impact on prices. The other weight on crude prices is the strengthening U.S. dollar. Because oil is traded in dollars, as the greenback gets stronger crude prices dip.
WTI for February delivery traded down about 2% in Monday’s electronic trading at $52.90 a barrel. Brent crude for March delivery traded down about 2.1% at $55.92.