Oil futures fell more than one per cent on concerns over rising US production and as equities fell, erasing earlier gains driven in part by the firing of US Secretary of State Rex Tillerson.
Brent crude futures dropped 31 cents, or 0.5 per cent, to settle at $US64.64 per barrel. US West Texas (WTI) crude futures fell 65 cents, or 1.06 per cent, to $US60.71 per barrel.
The market has been buffeted by a number of factors in an active session, including weakness in the equity market, which has trended in tandem with oil of late.
US production has reached an all-time record and weekly data last week showed overall output rising further, to more than 10.3 million barrels per day.
US crude production from major shale formations was expected to rise in April to a record 6.95 million bpd, the US Energy Information Administration (EIA) said on Monday.
‘There’s no stopping us and OPEC’s frustration levels are going to grow,’ said Philip Streible, senior market strategist at RJO Futures in Chicago, referring to efforts by major producers to curb output since last year.
Tillerson’s firing increases risks to the multilateral agreement to limit Iran’s nuclear capabilities, raising questions about potential effects on output by the third largest crude oil producer in the Organization of the Petroleum Exporting Countries.
CIA director Mike Pompeo is the pick to replace Tillerson; he has called for the 2015 Iran nuclear deal to be scrapped.
Trump has threatened to withdraw from the accord between Iran and six world powers unless Congress and European allies ‘fix’ it with a follow-up pact.
‘The market is having a wobble on the back of the potential impact on future supply from Iran and also for the ramifications for the Middle East as a whole,’ Ole Hansen, senior manager at Saxo Bank, said.
Concerns about supply have had an effect in the forward curve in the futures market, where the May contract has outperformed April, putting May’s price higher than April’s, known as ‘contango.’
When the front-month contract is trading at a lower level than a later-dated contract, it suggests emerging concerns about growing supply, and reduced need to buy oil now.
‘The market switched from backwardation to contango in the crude oil curve today… that’s a situation that implies weakness; it’s a situation that, if it persists, will lead to an increase in storage,’ said Bob Yawger, director of energy futures at Mizuho in New York.