Drop in Oil Prices from Highest Levels in 2016 Due to Increase in OPEC Production

Oil prices on Monday fell on international markets from the highest levels this year, primarily under pressure from the increase in production by OPEC members.

On the London market, the price of a barrel fell by 60 cents compared to Friday’s closing, amounting to $46.77. On the American market, the barrel weakened by 40 cents, reaching $45.52 compared to Friday’s closing.

The production of crude oil by the Organization of the Petroleum Exporting Countries (OPEC) rose in April to 32.64 million barrels per day (BPD), the highest level in recent history. Russia, the largest exporter outside OPEC, also increased its monthly overseas crude oil exports in April by more than 7 percent, to 3.117 million barrels per day.

Liquidity in the markets today is low due to Labor Day holidays in many countries.

On Friday, contracts for June oil deliveries were concluded on the London market, with the price of a barrel at $48.13, which is 21.5 percent higher on a monthly basis and represents the largest monthly increase since May 2009. On Friday, the price of a barrel at one point reached the highest level in the last six months at $48.50.

Data on the number of active drilling rigs in the U.S. last week showed a decline for the sixth consecutive week, which analysts interpreted as insufficient price increases for the recovery of shale production.

“Despite the price increase, we are witnessing a decline in the number of drilling rigs. The message from shale producers is that prices no longer need to fall. Everything necessary for rebalancing has already been done,” said Bjarne Schieldrop from Norway’s SEB.

A larger drop in oil prices was prevented by a weaker dollar exchange rate, which has become cheaper for countries using other currencies.

The head of the International Energy Agency (IEA) stated that oil prices have hit bottom unless there are major global economic problems. “Under normal economic conditions, we will notice that prices rise more than they fall,” said IEA Executive Director Fatih Birol during a G7 energy ministers meeting in Japan on Sunday.

Crude oil production in countries outside OPEC is on track to decline by more than 700,000 barrels per day this year, marking the largest drop in the last 20 years, Birol emphasized.

On Friday, OPEC announced on its website that the reference basket barrel of its oil was traded at a price 68 cents higher than the previous trading day, at $42.70.