Oil is on track for its largest monthly decline in two years due to Opec output

New York — Oil prices fell on Tuesday, on track for their largest monthly decline in two years after oil cartel Opec output reached a 2018 high in July and comments from US President Donald Trump raised hopes that sanctions on Iranian oil exports could be avoided.

October Brent crude futures fell 74c to $74.81 a barrel by 3.50pm GMT). The September contract, which expires later on Tuesday, traded at $74.40. US crude futures fell $1.15 to $68.98. Brent has lost about 6% this month, with US crude futures down about 7%. Both benchmarks were headed for the biggest monthly decline since July 2016.

Trump said he was willing to meet Iran’s leader without pre-conditions. Iranian officials rejected the proposal, urging Trump to first make up for withdrawing from the multi-lateral nuclear deal that the US had been a part of.

The developments fed into the oil selloff, said Phil Flynn, analyst at Price Futures Group in Chicago. “I think we went from getting ready to price in a total loss of Iranian exports to maybe, just maybe, we won’t lose any exports, depending on whether or not the Iranians take Donald Trump up on his offer.”

Russia and Opec boosted output in July, signs of growing global supply that pressured prices. The Reuters survey released on Monday showed Opec members increased production in July by 70,000 barrels per day (bpd) to 32.64-million bpd, a high for the year.

Opec has pledged to offset the loss of supply from Iran, the group’s third largest producer. Looming US sanctions have already started to cut Iranian exports.

“On the supply side, the latest news from Russia shows they increased production by about 300,000 bpd … as well as an increase in production in the Opec survey,” Saxo Bank senior manager Ole Hansen said. “The global [supply-demand] balance has softened and has been less tight in July, hence the sell-off we’ve seen.”

Iran said Trump was mistaken to expect Saudi Arabia and other oil producers to compensate for supply losses caused by US sanctions. A Reuters poll showed that oil prices are likely to hold fairly steady this year and next as increased output from Opec and the US meets growing demand led by Asia and helps offset supply disruptions.

The market will get weekly US inventory data on Tuesday from the American Petroleum Institute (API), an industry group, and on Wednesday from the US Energy Information Administration (EIA).

Analysts polled by Reuters estimated, on average, that crude stocks fell by about 3.2-million barrels in the week ended July 27.

Reuters