Oil Prices Drop To 7-Week Lows - Here's Why

Tyler Durden's picture

WTI Crude hit new 7-week lows, dropping below $57 (front-month) for the first time since April 15th's 'inventory draw' rip. In addition to reports from Reuters of leaked details about OPEC not expectated to cut production (did anyone really expect that), a combination of renewed inventory builds (as reported by API last night) and reports that Iraq is increasing its supply to new record highs is forcing futures prices to catch down to physical markets.

 

 

Weakness driven by...Iraq supply concerns...(as RT reports)

Iraq is ready to increase its crude exports to a record 3.75 million barrels per day in June, continuing OPEC’s strategy of ousting US shale producers from the market.

 

The extra oil from Iraq comes to about 800,000 barrels per day, more than from another OPEC member, Qatar, said Bloomberg, referring to Iraq's oil shipments schedule.

 

Iraq is increasing oil exports in two directions. The first is in the Shiite south, where companies such as BP and Royal Dutch Shell work. The second is Nothern Iraqi Kurdistan, whose government last year received Baghdad's consent to independent oil deliveries.

 

In April, Iraq exported almost 3.1 million barrels of oil per day, which is a record.

And Iran remains a worry...

And inventory builds reappear...

 

 

 

And leaked details of OPEC's report suggests no cut in production... (via Reuters)

OPEC is not expected to cut oil production at its meeting in June, and the meeting is expected to be a short one, Saudi Arabia's Al Hayat newspaper quoted an unnamed OPEC source as saying on Thursday.

 

Saudi Arabia will continue producing oil to meet customer demand, and its output is now at about 10.3 million barrels per day in light of growth in demand from China and India, the source added.

*  *  *

It appears, as we noted here, that futures prices are catching down to the phsyical markets' reality.

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Thisisbullishright's picture

See here, here, here and here.

Michael Snyder, I'm looking at you...  lol!

 

froze25's picture

So I should wait about a month to fill my Home Heating oil tank?

Theosebes Goodfellow's picture

~"What we have here is a failure to communicate..."~

I guess this sort of news has escaped the socialist government of the State of California. Unleaded regular gas is at $3.60 a gallon as of yesterday in one location on I-10 in SoCal, but more like $3.69 to $4.09 in most places.

 

Folks, don't let liberals get in charge of your state. Ever.

Muddy1's picture

Yes, and in the Utah it is 2.99 to 3.55, Nevada 3.54 after 2.9 in Denver this is a bit hard to take.  Lower fuel prices of earlier this year would have more people vacatiing the money around voluntarily.

Muddy1's picture

Yes, and in the Utah it is 2.99 to 3.55, Nevada 3.54 after 2.49 in Denver this is a bit hard to take.  Lower fuel prices of earlier this year would have more people vacatiing the money around voluntarily.

Dr. Engali's picture

See? Our investment in the invasion of Iraq and killing of thousands of civilians is finally paying off. Moar cheap oil just in time to save the driving season.  And as an added bonus we got gamma radition proof anthrax out of the deal.....#winning........ All hail the MIC. 

A_latvian's picture

Looks like it's time for some good ol' fasioned naked aggression to save U.S. Shale Oil.

A few bunker busters will take Iran down a peg or two.

KnuckleDragger-X's picture

They've already had the naked aggression part working, just not in the direction they were expecting. We're going to hit the point of not selling anything to anybody which is the new Utopia.....

WannabeRichGuy's picture

fk. what am i going to do with my gazprom calls...

random999's picture

And please tell me again, why and how would Iraq try to get rid of US shale production by boosting their own??

Wouldnt dumping the price just be shitting in your own pants? And aren't Iraq currently under full puppeteering control by the USA?

oudinot's picture

Wake up, Random, Iran is the puppet master of Iraq.

random999's picture

so Iran tries to destroy USA by giving away their oil? Considering that USA is a net importer all of this makes a lot of sense..

Sorry I must have been sleeping very deep, what have I missed?

KnuckleDragger-X's picture

We really don't import that much from the middle east anymore, but we broke it, so we're paying for it now.....

buzzsaw99's picture

"we" rained white phosphorus and depleted uranium all over iraq in order to put our own domestic oil production out of business? that's the plan? all hail big oil and big business! viva la bonus!

NoDebt's picture

When you say it like THAT it sounds all bad and stuff.

Bryan's picture

Hm.  I thought there was only like a couple trillion barrels total to suck out.  Maybe the earth is going to deflate now because too much oil is extracted and so all the mountains will suck down flat and then Saudi Arabia will sink into a giant hole like that Sarlacc lives in and we'll all die.  Or something.  Or maybe I should turn in my degree in petrolatum theory.   That's what I get for listening to Algore.

aliki's picture

US Dollar IMO - UUP bottomed-out around 24.5 on 5.15.2015 and has been grinding higher since. USO short-term rally ended right around 21.25 on that same day. USD still acts as a wrecking ball.

pndr4495's picture

Well, for all the BULLS out there : An oil trading G_d somewhere in Connecticut says that the ABSOLUTE FLOOR for oil is $ 40.00/bbl.

Bryan's picture

That's because he has pending buy orders at $39.95.  ;-)

Totentänzerlied's picture

Absolute floor is likely $34. Support will kick in between $45 and $34 - your number fits perfectly.

With prices below $85, tight oil and older fields worldwide continue bleeding from their eyes and ears. Even an H2 rally (many are calling for it) probably wouldn't be able to maintain $85, the Fed would have to reverse course and launch QE4. That would (will) be the next leg down - instant recession as energy costs blow a hole in budgets. They'll need to triple adjust GDP.

 

Soul Glow's picture

Demand has dropped too.

the_deflator's picture

Demand growth is certainly slowing. People forget it's not all supply side.

corporatewhore's picture

meaningless while price per gallon at the pump is $2.79

wrs1's picture

Wrong again...................

Is Cushing full yet?  When will oil be $20?

actionjacksonbrownie's picture

Just as soon as gasoline hits $5/gal

RealistDuJour's picture

Zero is Oil's Gartman, apparently

Chuck Knoblauch's picture

I guess the value of the dollar is climbing.

All depends on what article you read on ZH.

the_deflator's picture

It is. Especially if the economy strengthens/Fed can begin to raise rates. As the rest of the world continues printing money, their currencies will become relatively devalued. More than half the DXY is the EUR/USD rate.

the_deflator's picture

The Iran situation is incedibly divergent.

1. Iran agrees to a deal. Tensions are relieved, and their oil enters the market. Downward price pressure.

2. No deal is reached. Iran continues building its nuclear program. Their oil stays off the market. Upward price pressure.

Totentänzerlied's picture

In June we'll know if Saudi has succeeded in forcing the Non-OPEC producers' hands and they cut. Until then OPEC is losing money, but making it up for it splendidly having killed half of US tight oil and punished every other (higher marginal production cost) producer.

Iran has nothing to with this, they're treading water just to stay barely afloat and avoid revolution, at the mercy of the rest of OPEC.