U.S. Oil Falls 16% for the Month, Closes Down to 3 ½ Month Low

Oil prices

While OPEC oil cuts have helped spur oil prices to new highs, the main U.S. benchmark has been falling drastically. With the substantial increase in domestically produced oil and natural gas helping push down prices, other global geopolitical developments have also played a role in exerting a downward pressure on prices.

By the end of the month, U.S. oil futures ended May down 16 percent, reaching a 3 ½ month low, with other energy-related commodities dipping as well.

Oil futures fell by over 5 percent on Friday alone, ending both the week and the month with heavy losses as U.S. tariffs on Mexico seem to be a looming possibility.

West Texas Intermediate crude for July delivery dropped $3.09, or 5.5 percent, ending the day at $53.50 per barrel, the lowest price seen for these contracts since mid-February. With the southern country being a key energy trade partner for the U.S., this move has led to many worrying there would be decreased demand for U.S. oil as a result.

“Adding on to an already bearish trend, President [Donald] Trump announced plans for a 5% tariff on Mexican imports, with framework for continued escalation related to border security. The move will add to existing trade and economic concerns, but also carries specific risks for crude and products, with Mexico being a key energy trade partner,” said Robbie Fraser, senior commodity analyst at Schneider Electric. At the same time, concerns about Iran and Iranian oil have also been looming in the background of the global oil market. “Traders have been told that the goal was to get Iranian oil exports to zero. The last time President Trump granted waivers to Iranian oil buyers it caused one of the biggest selloffs in oil history, and traders and producers still have that etched in their minds,” added Phil Flynn, senior market analyst at Price Futures Group.

As such, it appears that the U.S. government might allow some countries to continue to import Iranian oil after all, despite the expiration of sanction waivers in early May.

Iran was recently attributed as being the main culprit behind the oil tanker attacks which had startled the oil markets earlier. Either way, this move from the U.S. government also exerted some influence on oil prices.

Regardless, worries about Mexico seem to be the main reason for Friday’s decline. As the U.S. tries to strong-arm Mexico into doing more to stop the flow of illegal immigrants, Trump has stated in the past that he would be willing to hike up tariffs by an additional 5 percent every month until the crisis is solved, up to a potential 25 percent maximum.

While these types of statements have normally been interpreted by experts as negotiating threats that Trump later withdraws on, they are still enough to rattle the markets.

July natural gas contracts fell by 3.7 percent on Friday as well, dipping to the lowest price point it’s seen since June 3rd, 2016.

Gasoline prices have fallen 4.1 percent as well, ending the week down 6.9 percent and around 15 percent for the month. Heating oil, another oil product, fell by 3.8 percent, down 6.6 percent and 11.5 percent over the week and month respectively.