Oil dropped after the biggest rally in a month in New York as a recovery in Iranian production pushed OPEC supplies to the highest in more than three years.
West Texas Intermediate futures fell as much as 3 percent. The Organization of Petroleum Exporting Countries raised output by 100,700 barrels a day to 31.5 million last month, the most since June 2012, the group said in its monthly report, citing external sources. Crude also declined as China devalued its currency, fanning concern that demand in the world’s second-biggest oil user may slow as import costs rise.
Oil has dropped more than 25 percent since this year’s peak closing price in June on concern the global surplus that drove crude into a bear market will persist. In July the Bloomberg Commodity Index of 22 raw materials capped the biggest monthly drop since 2011 on faltering Chinese demand and ample supply.
“The surge in supply is unrelenting,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. “The move by China is shaking up all the markets. It is further evidence of how the economy is performing and how much that worries the central planners.”
WTI for September delivery decreased $1.39, or 3.1 percent, to $43.57 a barrel at 9:08 a.m. on the New York Mercantile Exchange. The volume of all futures traded was more than double percent above the 100-day average. The contract surged 2.5 percent to settle at $44.96 Monday after earlier touching $43.35, the lowest since March 20.
Brent for September settlement dropped $1.11, or 2.2 percent, to $49.30 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a $5.73 premium to WTI.
Iran increased output by 32,300 barrels a day in July to 2.86 million a day, the highest since June 2012, according to data OPEC compiles from “secondary sources.”
China cut the yuan’s reference rate by the most in two decades, allowing depreciation to combat a slump in exports. The devaluation ends a de facto peg to the dollar that’s been in place since March and battered exports. The change was a one-time adjustment, the People’s Bank of China said in a statement, adding that it plans to keep the currency stable at a “reasonable” level and will strengthen the market’s role in determining the fixing.
Investor concern that oil could by dragged down further by an Iranian sale of crude inventories once sanctions are lifted is overdone, according to a Bloomberg Intelligence survey published Tuesday. Iran’s stockpile of crude amounts to 20 to 40 percent of one day’s global oil demand and the nation will add less than 1 million barrels a day to crude supply next year, most of the survey’s 121 respondents said.
U.S. crude supplies probably slipped 2 million barrels last week, according to a Bloomberg survey before Energy Information Administration data Wednesday. Shale output will fall for a fifth straight month in September, the EIA projected in a separate report Monday.