Oil prices kicked off the week in red territory as the Greek debt crisis helped boost the dollar. Indeed, investors are concerned about the global oil oversupply.
On the New York Mercantile Exchange, contracts for July delivery of West Texas Intermediate (WTI), a popular benchmark of U.S. energy prices, were trading down 1.05% at $59.48 a barrel by 11:00 a.m. EDT. Brent crude oil dropped by $1.63 to a low of $62.24 a barrel before recovering to trade around $62.60, down $1.27.
Talks between the Greek government and its creditors collapsed over the weekend, sending investors fleeing to safe haven assets like the U.S. dollar; the U.S. Dollar Index, which tracks the value of the dollar against a basket of foreign currencies, rose 0.24% during the trading session to $95.19. Since oil is priced in dollars, a strong American currency reduced the number of barrels foreign countries can buy.
Investors are also worried about persistent oversupply concerns from the Organization of Petroleum Countries (OPEC). According to industry analysts, the cartel’s biggest member, Saudi Arabia, is pumping around two million barrels per day (bpd) more than necessary. Traders are also worried that sanctions against Iran could soon be lifted, allowing the country to finally export its oil. Iran’s oil minister Bijan Zanganeh said his nation would increase production by one million barrels a day within months of economic sanctions against the country being lifted.
This week, investors will be eyeing reports on the oil supplies. In its previous report, the Energy Information Agency noted U.S. crude inventories declined for the sixth straight week. American energy production has been resilient, despite the cuts in rig counts.
The news is disappointing for energy bulls. Previously, economists believed oil production would remain flat for the rest of the year, putting a floor underneath prices. Recent reports suggest, however, that the oil market continues to be oversupplied.