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Why Is Crude Oil Trading at a 3-Week Low This Morning?

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Oil continues to weaken this week

After closing lower on Monday and having a weaker start this week, crude oil fell to three-week low price levels. At 5:15 AM EST on June 14, the West Texas Intermediate crude oil futures for July delivery was trading at $48.17—a drop of 1.5%. Brent crude was trading at $49.71—a decline of 1.3%.

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OPEC’s production fell in May

According to the crude oil monthly assessment report released by OPEC (Organization of the Petroleum Exporting Countries) on Monday, OPEC’s crude oil output in May fell by 100,000 bpd (barrels per day) and reached 32.4 MMbpd (million barrels per day). This is 0.16 MMbpd less than the demand forecast for 2H16. It shows that OPEC’s production is lower than the demand forecast for the second part of this year. This is mainly due to supply disruptions in the Canadian oil fields, Iraq, Venezuela, and Nigeria.

Brexit concerns

OPEC expects a drop in the crude oil supply from non-OPEC nations by 740,000 bpd in 2016 to 56.4 MMbpd. The supply from the US is forecast to reach 13.6 MMbbls this year—a drop of 420,000 bpd. Supported by the increase in demand for India’s oil, OPEC forecast the oil demand for 2016 to raise by 1.2 MMbpd to 94.2 MMbpd. Even though the report looks supportive for crude oil prices, concerns about the Brexit vote overtook the sentiment and weighed on crude oil prices this morning.

On Monday, major crude oil producers Carrizo Oil & Gas (CRZO) and Canadian Natural Resources (CNQ) gained 1.5% and 0.46%. British Petroleum (BP) and Total S.A. (TOT) fell 1.1% and 1.6%, respectively. The SPDR S&P Oil & Gas Exploration and Production ETF (XOP) and the Power Shares DB Oil ETF (DBO) declined 0.8% and 0.76%. In the next part, we’ll see how precious metals performed this morning.

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