Oil prices fell 3 percent on Monday as Iraq announced record-high oil production feeding into a heavily oversupplied market. This fall lead to wiping out much of the gains made in one of the biggest-ever daily rallies last week.
Brent crude, the global benchmark, was down 84 cents at $31.34 a barrel at 1122 GMT, losing 2.6 percent from its closing price on Friday, when Brent leaped 10 percent.
U.S. crude traded 95 cents lower at $31.24 a barrel.
According to Reuters, Iraq’s oil ministry said on Monday that oil output had reached a record high in December. Its fields in the central and southern regions produced up to 4.13 million barrels per day, the government reported.
“The news that Iraq has probably hit another record builds on the oversupply sentiment,” said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam.
“The oversupply will keep markets depressed and prices low, and on the other hand short positions are in excessive territory,” he said.
The closing of large amounts of short positions had led to a huge rally on Friday that was largely undone again on Monday, creating huge volatility in the oil market.
Fundamental factors remained bearish.
Moreover, support among the Organization of the Petroleum Exporting Countries for taking action to steps to hold up crude prices is feeble, with only one OPEC country supporting an emergency meeting over the matter, Indonesia’s OPEC governor said.
On the other hand, the group’s Secretary-General Abdullah al-Badri was more optimistic as he said at a separate event in London that he saw some signs the market was rebalancing.
He also said OPEC and non-OPEC producers needed to cooperate to deal with oversupply in order to prop up oil prices.
In a different conference on Monday, the chairman of Saudi Aramco said that oil prices would eventually balance at a moderate level as demand continued to rise.
In the United States, one of OPEC’s largest production rivals, a further drop in the number of oil rigs was expected to weigh on production.
According to U.S. investment bank Goldman Sachs, production is expected to decline by 95,000 barrels per day in 2016, including well deferrals, higher than formerly presumed.