Oil prices slide further as Iraq prepares to ramp up exports

Crude oil prices extended their decline Tuesday, as optimism for a production freeze faded on reports that Iraq is preparing to ramp up exports and Nigeria could follow soon.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in October 

CLV6, -1.14%  lost 31 cents, or 0.7%, to $47.11 a barrel. October Brent crude on London’s ICE Futures exchange LCOV6, -0.94%  fell 16 cents, or 0.4%, to $48.98 a barrel.

Prices had risen for three straight weeks on expectations that the Organization of the Petroleum Exporting Countries would agree to freeze production at an informal meeting in September. But many analysts are skeptical that a deal can be reached, or that an output freeze at an already-high production level can help reduce the oversupply of crude.

“In the past 12 months, we have been burned many times that OPEC will have some movement to adjust the production,” said Ben Le Brun, an analyst at OptionsXpress. “The market now takes anything OPEC says with a grain of salt.”

Without a collective measure to curtail output, market watchers fear the rebalance of oil supply and demand, originally expected for later this year, would be pushed back.

Moreover, the resumption of oil exports and production in several countries that were interrupted earlier this year by either natural disasters or political tension, is exacerbating the overhang.

“Oil also slipped overnight, ending a long run of daily gains as Iraq moves to boost crude shipments by about 5% over the next few days and Nigerian militants called an end to hostilities,” said ANZ Research.

In July, Iraq’s crude exports hit 3.71 million barrels a day and produced around 4.33 million barrels of crude a day, a sharp rise of 80,000 barrels a day from the previous month, the International Energy Agency said.

Nigeria, whose crude production has been hit due to militant attacks over the last few months saw the biggest decline of 40,000 barrels a day in July to 1.52 million barrels a day, the IEA said. Around 70% of Nigeria’s state revenue comes from crude sales and the militants have been demanding a bigger cut. The militants have now called for a ceasefire and expressed willingness to negotiate with the government. If successful, the move is expected to boost crude production and exports from the country.

Adding to the supply worry is the continuing deluge of products from China. In July, China’s exports of gasoline more than doubled from a year ago to 970,000 metric tons, or 230,000 barrels a day while exports of diesel nearly tripled to 1.53 million metric tons, or 362,000 barrels a day.

The uptrend in China’s exports of fuel is underpinned by the country’s shift away from an industrial-based economy, said BMI Research.

“The downbeat impact of a struggling economy on consumption is set to remain in play for some time, as we believe that China’s economic slowdown has further to go,” the firm said.

Market players will be watching the weekly U.S. crude inventories and production estimates to be released by industry group American Petroleum Institute later today. A survey by S&P Global Platts forecast crude stocks to increase by 200,000 barrels while gasoline dropped 1.6 million in the week ended Aug. 19. Official data by the U.S. energy department will be released on Wednesday.

Nymex reformulated gasoline blendstock for September RBU6, -1.13%  — the benchmark gasoline contract — fell 0.7% to $1.47 a gallon, while September natural gas NGU16, -0.63% slipped 0.6% to $2.66 per million British thermal units.