Oil Falls as Saudis Offer More Supply, U.S. Weighs SPR Release

Oil retreated below $70 a barrel as Saudi Arabia was said to offer extra crude to some customers, while the U.S. was said to consider tapping emergency supplies to offset losses elsewhere.

Futures in New York slid 2 percent after falling 3.8 percent last week. Saudi Arabia offered additional cargoes of its Arab Extra Light crude to at least two buyers in Asia, people familiar with the matter said. Meanwhile the U.S., which is seeking to choke off crude exports from Iran, is said to be mulling a release from its 660 million-barrel Strategic Petroleum Reserve.

Prices are retreating from the three-year high hit last month as Saudi Arabia and its allies move to counteract supply losses elsewhere in the Organization of Petroleum Exporting Countries. They have pledged to offset the supply impact of the spiraling crisis in Venezuela, erratic flows in Libya and renewed U.S. sanctions on Iran. Oil is also slipping on concern that trade tensions between the U.S. and China will hurt demand.

“There is no shortage of bullish news items on the supply side, but they are maybe being trumped by the talk of the president tapping the U.S. SPR to keep oil prices down this summer,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas SA in London.

West Texas Intermediate crude for August delivery fell 2 percent to $69.56 a barrel on the New York Mercantile Exchange at 8:23 a.m. Total volume traded was in line with the 100-day average. Prices dropped $2.79 to $71.01 last week.

Brent for September settlement was down $1.92 at $73.41 a barrel on the London-based ICE Futures Europe Exchange, and traded at a $5.05 premium to WTI for the same month. Prices for the global benchmark crude declined 2.3 percent last week.

Libya Disruption

In Libya, crude production at its biggest field is set to drop by about half after authorities shut wells for safety following the armed abduction of workers at the Sharara deposit, according to the National Oil Corp. While the African nation lifted force majeure at its western El-Feel field and resumed shipments from eastern oil ports last week, supply disruptions like the one at Sharara complicate efforts by OPEC, of which Libya is a member, to pump more crude.

Russia’s Energy Minister Alexander Novak said OPEC and its partners could, if necessary, increase production by more than the 1 million barrels a day pledged last month. Still, the group’s Gulf members may need to pump almost as much oil as they can to cover swelling output losses, according to the International Energy Agency.

“We may see OPEC members with the ability to ramp up output seek to grab more market share,” while others such as Iran and Venezuela resist, said Ahn Yea Ha, an analyst at Kiwoom Securities Co. “It’s unclear whether the U.S. will actually use the emergency inventories, but we can at least tell that they feel a lot of pressure from crude trading above $70.”

See also: Oil Explorers in U.S. Heartland Need $69 Crude to Boost Drilling

The Trump administration is reviewing options ranging from a 5 million-barrel test sale to the release of 30 million barrels from its oil reserve to cool pump prices ahead of congressional elections in November, which is also when sanctions on Iran are due to snap back. A senior Iranian official urged Trump not to use the emergency stockpiles and instead drop the sanctions.

The Islamic Republic, facing the loss of customers scared off by U.S. penalties, disputes that OPEC agreed to any significant output increases at its meeting in June. Production limits assigned in late 2016 still apply, and any country that exceeds them is betraying the group, it has said.

Oil-market news:

Last week, explorers in the U.S. oil patch continued to drill at the highest rate in more than three years as crude inventories dropped to their lowest since February 2015. Hedge funds are showing signs of wavering confidence in ever-higher oil prices. Money managers were taking money off the table before Brent had its worst day in two years on Wednesday. Libya’s Waha Oil Co. was said to restart output halted since June at a rate of 20,000 barrels a day, and to plan to reach 50,000 a day on Tuesday, according to a person familiar with the matter.