There are palpable fears among countries whose revenues depend largely on oil, like Nigeria as oil prices fell to seven-month lows today after news of increases in supply by several key producers, a trend which has undermined attempts by OPEC and other producers to support the market through reduced output.
Benchmark Brent dropped $1.06 to a low of $45.85 a barrel, its weakest since November 18, just before OPEC and other producers agreed to cut output by 1.8 million barrels per day (bpd) for six months from January.
The U.S. crude oil futures contract for July, which was due to expire later today fell 98 cents to a low of $43.22, its lowest since Nov. 14, before recovering to around $43.30.
Both benchmarks are down more than 15 percent since late May when OPEC, Russia and other producers extended their limits on production until the end of March 2018.
“Recent data points are not encouraging,” Morgan Stanley analysts said in a research note. “Identifiable oil inventories – both crude and product in the OECD, China and selected other non-OECD countries – increased at a rate of (about) 1 (million bpd) in Q1.”
OPEC supplies jumped in May as output recovered in Libya and Nigeria, two countries exempt from the production reduction agreement.
Libya’s oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germany’s Wintershall, a Libyan source told Reuters.
Nigerian oil supply is also rising, industry figures show. Exports of Nigeria’s benchmark Bonny Light crude oil are set to reach 226,000 bpd in August, up from 164,000 bpd in July, loading programmes show.
“The increasing August export programme in Nigeria and the jump in Libyan oil output should pressure oil prices further in the short term,” said Tamas Varga, senior analyst at London brokerage PVM Oil Associates.
“If we get bearish U.S. oil statistics this week, we could see a test of $45 on Brent,” Varga said.
However, Saudi Energy Minister Khalid al-Falih said the oil market is heading in the right direction and just needs time to rebalance, the London-based newspaper Asharq al-Awsat reported.