Oil prices tumbled by 4 percent on Monday on concern that record Iraqi crude exports and rising U.S. output would undermine OPEC’s efforts to curb global oversupply.
U.S. crude futures CLc1 settled down $2.03 at $51.96 a barrel, while Brent futures LCOc1 settled down $2.16 at $54.94 a barrel.
In Iraq, OPEC’s second-biggest producer, oil exports from the southern Basra ports reached a record high of 3.51 million barrels per day (bpd) in December, the oil ministry said.
OPEC members agreed in November on the first deal to cut oil output since 2008, limiting supplies to 32.5 million bpd starting Jan. 1 for six months.
Iraq’s oil ministry underscored that the high levels from the south would not affect the country’s decision to cut January production to comply with the OPEC agreement. But some remained concerned over the feasibility of the cuts, which would have to come from the north.
“We have compliance with the Gulf countries, but the rest of the slate is looking a bit shaky,” said Robert Yawger, director of the futures division at Mizuho Securities USA.
“With the big numbers coming out of the southern port of Basra for December … it’s implying that Iraq may be the first big crack in the wall of the OPEC agreement,” he added.
Sources also told Reuters that Iraq’s State Oil Marketing Company had given three buyers in Asia and Europe full supply allocations for February.
The lower optimism comes even though Russia, one of the world’s largest crude producers, is apparently sticking with the agreement to cut. Russian energy market sources told Reuters the country’s output had fallen by 100,000 bpd in the first week of the month.
Kuwait’s oil minister added on Monday that an OPEC committee will meet in Vienna on Jan. 21-22 to monitor compliance and agree on a “final monitoring mechanism.”
Last week, U.S. energy companies added oil rigs for a 10th week in a row, Baker Hughes data showed, with some analysts expecting the U.S. rig count will rise to 850-875 by the end of the year.
Dealers say that the recent uptick in U.S. shale hedging to protect future output for 2018 and beyond could put more pressure into the market. They add that high inventories nationwide are still a hurdle for the market.