Market Overview

3 Factors Impacting Oil As Price Marks 7-Month Low

3 Factors Impacting Oil As Price Marks 7-Month Low

Oil prices fell to seven-month lows on Tuesday, with Brent Crude falling to $45.62 a barrel.

Several oil ETFs were trading 3–7 percent lower in Tuesday’s pre-market session on the news, including United States Oil Fund LP (ETF) (NYSE: USO), which fell to its lowest since February 16, 2016.

Libya And Nigeria Fuel Inventories

The current price of oil is the weakest since shortly before OPEC agreed in late-November 2016 to collectively cut production by 1.8 million barrels per day for six months. At the end of May, OPEC agreed to extend the cuts for an additional nine months.

Both Libya and Nigeria are exempted from the agreement though, and both recently raised production.

Libya’s oil production rose 50,000 barrels per day to 885,000, a Libyan source told Reuters, after reaching a settlement with Germany’s Wintershall.

Nigeria also expanded production of its benchmark Bonny Light crude oil, which is now set to reach 62,000 barrels per day late this summer.

Further expansions will cause investors to question whether OPEC is capable of managing the world’s supply anymore, pushing prices even lower.

Hedge Funds Trim Their Positions

Hedge funds cut their long positions in the three major futures and options contracts tied to Brent and W&T Offshore, Inc. (NYSE: WTI) by 51 million barrels in the week to June 13, according to Reuters.

It's the second week in a row that money managers reduced their positions, which they did in heating oil and gasoline as well.

The bearish sentiment has likely shaken the faith of everyday investors, contributing to falling share prices.

Weekly Numbers

Oil analyst will be looking toward this week’s API and EIA numbers to gauge the effect of increased production from Libya and Nigeria on inventories.

They will also help predict greater output from the United States. EIA estimates showed that there were 5,946 drilled-but-uncompleted oil wells in the U.S. at the end of May, the most in three years.

As they move into production, oil prices could drop well below the current $45 per barrel resistance level.

Related Links:

Some Predictable Catalysts For Oil, By Way Of Fed's Rising Interest Rates

Non-OPEC Countries Alone Can More Than Account For The Jump In Demand


Related Articles (USO + WTI)

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