Oil prices were down on Tuesday and are on track for their biggest monthly drop in two years on rising OPEC production and comments from US President Donald Trump that raised hopes that Iranian oil export sanctions may be avoided.  Apache photo.

Oil prices down over 1.5 per cent

Oil prices fell by over 1.5 per cent on Tuesday and are on track for their largest decline in over two years on rising OPEC production this month and comments from US President Donald Trump opening the door to a meeting with Iran.

By 2:47 p.m., EDT, benchmark Brent crude futures were down $1.26 to $74.29/barrel and the September contract, expiring later on Tuesday, traded at $74.67.  US crude futures dropped $1.40 to $68.73 with the September contract trading at $68.94.

The Canadian Crude Index tumbled $1.64 to $40.61.

So far in July, Brent is down about 6 per cent and US crude futures have fallen about 7 per cent and both benchmarks are on their way to the biggest monthly drop since July 2016.

President Trump says he is willing to meet with Iran’s leadership without preconditions.  “I would certainly meet with Iran if they wanted to meet,” Trump said on Monday. “I do believe that they will probably end up wanting to meet. I’m ready to meet whenever they want to.”

However, Iran rejected the offer and, instead, urged Trump to make up for withdrawing from the multinational nuclear deal that had been signed by former President Obama, the United Kingdom, Russia, France, China, Germany and the European Union in 2015.

Iranian officials warned that oil prices would increase if the US did not grant waivers to Iranian crude buyers, adding it would be incorrect to assume Saudi Arabia could compensate for the shortfall should the sanctions go ahead.

“It seems President Trump has been taken hostage by Saudi Arabia and a few producers when they claimed they can replace 2.5 million barrels per day of Iranian exports, encouraging him to take action against Iran,” Hossein Kazempour Ardebili, Iran’s OPEC governor, told Reuters.

The conflict fed into the oil selloff, Phill Flynn, analyst at Price Futures Group in Chicago told Reuters.

“I think we went from getting ready to price in a total loss of Iranian exports to maybe, just maybe, we won’t lose any exports, depending on whether or not the Iranians take Donald Trump up on his offer,” Flynn said.

In July, Russia and OPEC boosted their production, pressuring prices.  A Reuters survey released on Monday reported that OPEC members increased their output by 70,000 barrels per day (b/d) this month to a year-high of 32.64 million b/d.

In the past, OPEC pledged to boost its supply to make up for expected losses from Iran due to the looming US sanctions, which have already impacted Iranian exports.

“On the supply side, the latest news from Russia shows they increased production by around 300,000 b/d … as well as an increase in production in the OPEC survey,” Saxo Bank senior manager Ole Hansen told Reuters.

“The global (supply-demand) balance has softened and has been less tight in July, hence the sell-off we’ve seen.”

On Tuesday afternoon, the American Petroleum Institute will release its weekly US crude inventory data and on Wednesday morning, the US Energy Information Administration will offer its weekly data on oil stocks.

Analysts polled by Reuters prior to the data release anticipate crude stocks will have fallen by about 3.2 million barrels in the week ending July 27.