On Monday, July 2nd 2018, oil prices fell by more than 1 percent owing to an increase in oil supply from Saudi Arabia and a drop in demand from Asian countries due to an economic slowdown.
Brent crude oil futures were at $78.16 per barrel at 0316 GMT, down $1.07, or 1.35 percent, from their last close.
U.S. West Texas Intermediate crude futures were down 94 cents, or 1.3 percent, at $73.21 a barrel, after rising more than 8 percent last week.
According to a Reuter’s survey on Friday, Saudi oil supply increased by 700,000 barrels per day (bpd) in May, resulting in an amount of supply over and above that which is required to counterbalance the disruptions from countries within Organization of Petroleum Exporting Countries (OPEC).
The main Asian economy, reflecting areas around China, Japan and South Korea have all reported to have experienced a reduction in export orders in June. “Recurring salvos in the trade war and falling asset prices raise the question of how much tariffs could damage the global economy, U.S. bank JP Morgan said in a note. They further added, “medium-intensity (trade) conflict would likely reduce global economic growth by at least 0.5 percent, before accounting for tighter financial conditions and sentiment shocks.”
Regardless of an increased supply from Saudi Arabia, oil markets remain under stress due to growing trade disputes between U.S and major economies including China, the European Union, India and Canada
A further drop in oil supply from Asia is expected in future due to U.S sanctions against Iran. In an interview broadcasted on Sunday, U.S president Donald Trump has threatened U.S allies to sanction the European countries that continue to maintain business relationships with Iran. “The Trump Administration's plan for Iran sanctions is now abundantly clear. They seek to push Iranian exports of crude, condensate, and oil products to zero,” energy consultancy FGE said in a note.
“Overall, 2.4-2.7 million bpd of Iranian crude/condensate is at risk by year end … We must all be prepared for a potentially major price volatility ahead,” FGE added.