Oil prices fell over 2 per cent on Monday on reports that Saudi Arabia will cut prices for its Asian customers in May and rising production in Russia.  

Oil prices fall over 2 per cent Monday

In quieter trading on Easter Monday, oil prices fell by over 2 per cent as the trade battle between the US and China intensified, crude production in Russia rose and trade sources reported Saudi Arabia will cut prices it charges Asian customers.

By 3:03 p.m. EDT, benchmark Brent had fallen $1.64 to $67.70/barrel, its lowest since March 21, and US WTI dropped $1.84 to $63.10/barrel.  The Canadian Crude Index fell $1.02 to $43.43.

According to Reuters sources, Saudi Arabia will cut prices for all crude grades it sells to its Asian customers in May due to falling prices for its Dubai crude.

“There is speculation that the Saudis are going to lower prices for their Asian customers,” Bob Yawger, director of energy futures at Mizuho told Reuters. “That is not really the kind of thing you do when you want to keep production cuts in place.”

Saudi Arabia has led the charge to increase oil prices by negotiating with OPEC members and non-cartel countries to cut the global supply of crude by 1.8 million barrels per day (b/d) overall.  When the OPEC supply cut agreement began in January 2017, oil prices were below $30/barrel and have since risen to just under $70/barrel.

However, one of the pact participants, Russia, just reported an increase in production in March.  Russian energy ministry data reported Russia’s output rose in March to 10.97 million b/d from 10.95 million b/d in February.

As well, oil prices took a hit on Monday in step with global markets as China ratcheted up its trade spat with the United States.  China increased tariffs by up to 25 per cent on 128 products exported by the United States in response to the Trump administration’s tariff on US steel and aluminum imports.

“Increasing trade friction between China and the U.S. is likely to rock global markets and tarnish bullish sentiment in crude oil markets,” Wang Xiao of Guotai Junan Futures told Reuters.

Brent crude was on a winning streak since the beginning of the year, rising to a 2018 high of $71.28/barrel in January, but, the gains have since stalled.  Last week, prices rose over $71/barrel and have since settled to around $68/barrel.

Analysts say a number of bearish factors are impacting oil prices, including the discovery of the largest oilfield in decades in the Kingdom of Bahrain.  According to John Macaluso of Tyche Capital Advisors, the field is thought to hold several times the amount of crude currently produced by the kingdom’s current fields.

And, rising US production is capping oil price gains as well.  According to the US Energy Information Administration, US crude production is expected to hit 11 million b/d by the end of 2018.

Supporting oil prices on Monday were tensions between Iran and the US.  President Donald Trump continues to threaten to pull out of the 2015 international nuclear deal with Tehran.  The deal allowed Iran to increase its crude exports which had previously been limited under sanctions.

“The Iranian factor is going to be a very significant input for the next four weeks,” Olivier Jakob of Petromatrix told Reuters.

Trump has given European signatories until May 12 to fix the deal.