Oil prices drop below $65

Oil prices drop below $65

Oil prices fell to their lowest in seven weeks today amid fears of rising global supplies after Iran announced plans to increase production and US crude output hit record highs.

US West Texas Intermediate (WTI) crude for March delivery fell to $60.49/bbl on the New York Mercantile Exchange.

Brent for April settlement declined to $64.33/bbl on the London-based ICE Futures Europe exchange. 

Brent futures have lost as much as 15 percent since hitting a four-year high above $71 in late January, Reuters reported.

The US Energy Information Administration (EIA) earlier said crude production last week rose to a record high of 10.25 million barrels per day (bpd). At that level, U.S. production would overtake the current output in Saudi Arabia.

In addition, the US Congress plans to sold 100 million barrels of crude oil from the country's emergency petroleum stash starting in 2022, or about 15% of the reserve, according to the text of the agreement.

The deputy director of energy policy of the Institute of Energy and Finances, Alexey Belogoriev, speaking to Vestnik Kavkaza, noted that this week oil has shown its dependence on the general crisis in the US bond market. "The current drop in oil prices reflects a general correction in the market: there was a certain bubble in the US commodity and financial markets, and its consequences affected the oil prices. The decrease in stock indices was enough to make oil cheaper," he said in the first place.

Meanwhile, there is still an uncertainty in the oil market, which does not contribute to price increases. "On the one hand, the OPEC+ agreement is still being fulfilled, the US output is growing within the limits of forecasts, the statistics on the number of reserves and oil rigs in the US is not sensation. But on the other hand, traders still expect further US production growth and a supply surplus in the market, which may be formed by the third quarter. This general background of expectations also contributes to lower prices," Alexei Belogoriev explained.

"In general, price fluctuations within the range of $60-70 per barrel reflect some overvaluation of oil associated with the influence of financial markets, since currently there are no fundamental grounds for oil prices to exceed $60 per barrel. The range should be rather $50-55 now, and the fact that prices have risen to $70 per barrel over the past six months, in my opinion, is a consequence of overheating of financial markets. Therefore, it's logical that prices start to decline," the expert noted, adding that in this regard, in the current environment, $7 is an acceptable level of price spikes.

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