Oil dips as soaring US production outweighs talk of OPEC output cuts

CNBC

  • Oil remains in ample availability despite U.S. sanctions on Iran fuel exports going into effect.
  • U.S. crude output has tripled since 2008, with the Energy Information Administration expecting it to break through 12 million barrels per day by mid-2019.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil prices dipped on Thursday as record U.S. crude output heightened concerns of a return of global oversupply, stoking talk from within OPEC that production curbs may become necessary once again to prevent a glut.

Front-month Brent crude oil futures were at $71.93 a barrel at 00301 GMT, down 14 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $61.68 per barrel, virtually flat from their last settlement.

Benjamin Lu of brokerage Phillip Futures in Singapore said that overall, “Oil prices continue to demonstrate…bearish influences amidst market concerns of rising global inventories… (and as) increasing output levels threaten to upset supply fundamentals in Q4 2018.”

A group of producers around the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as Russia decided last June to relax output curbs in place since 2017, after pressure from U.S. President Donald Trump to reduce oil prices and make up for supply losses from Iran.

But with Iran sanctions now in place and oil still in ample availability, OPEC-led production cuts next year cannot be ruled out, two OPEC sources said on Wednesday.

“OPEC and Russia may use cuts to support $70 per barrel,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“The introduction of U.S. sanctions earlier this week against Iran failed to lift the market given the announcement that eight countries, including three of the world’s biggest importers, would receive waivers to carry on buying Iranian crude for up to six months,” Hansen said.

Concerns over potential oversupply

At the heart of rising global output has been a relentless increase in U.S. crude production, which hit a record 11.6 million barrels per day (bpd) in the week ending Nov. 2, according to Energy Information Administration (EIA) data released on Wednesday.

That’s a threefold increase from the U.S. low reached a decade ago, and a 22.2 percent rise just this year. It makes the United States the world’s biggest producer of crude oil.

More U.S. oil will likely come. The EIA expects output to break through 12 million bpd by mid-2019, thanks largely to a surge in shale oil production.

Meanwhile, U.S. crude inventories rose by 5.8 million barrels in the week ending Nov. 2, to 431.79 million barrels, the EIA said.

Crude stocks moved back above their five-year average levels in October.

Production has not just risen in the United States, but also in many other countries, including Russia, Saudi Arabia, Iraq and Brazil, stoking producer concerns of a return of oversupply that depressed oil prices between 2014 and 2017.

“Producers are concerned about the potential oversupply … after EIA reported that crude inventories rose by 5.8 million barrels,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

Oil prices fall amid supplied market, Iran sanction exemptions

CNBC

  • Oil prices fell on Wednesday, extending losses from the previous session, with markets well supplied amid rising production and U.S. sanction waivers that allow Iran’s biggest customers to continue buying its crude.
  • Front-month Brent crude oil futures were at $71.85 per barrel at 0115 GMT, down 28 cents, or 0.4 percent, from their last close.
  • U.S. West Texas Intermediate (WTI) crude futures were at $61.76 per barrel, down 45 cents, or 0.7 percent, from their last settlement.

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David McNew | Getty Images

Oil prices fell on Wednesday, extending losses from the previous session, with markets well supplied amid rising production and U.S. sanction waivers that allow Iran’s biggest customers to continue buying its crude.

Front-month Brent crude oil futures were at $71.85 per barrel at 0115 GMT, down 28 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $61.76 per barrel, down 45 cents, or 0.7 percent, from their last settlement.

The increasingly well supplied market has turned sentiment, which until early October was largely bullish, pushing Brent to four-year highs of more than $86 per barrel ahead of the Iran sanctions.

Brent and WTI have lost 17.4 and 19.7 percent in value respectively from their most recent peaks in early October.

U.S. bank J.P. Morgan said “part of the recent sell-off in oil was due to excessive crude in the physical markets…from elevated production from OPEC whilst Iranian supply was still in the market despite reduction in reported exports.”

Fawad Razaqzada, market analyst at futures brokerage Forex.com, said he had become “quite bearish on oil prices” due to lower demand growth forecasts, higher supply and Iran sanctions waivers.

According to Refinitiv Eikon data, Iranian crude exports have fallen to 1 million barrels per day (bpd) so far in November, down from almost 2 million bpd in October and around 3 million bpd in mid-2018.

U.S. bank Morgan Stanley said “oil market fundamentals have softened (as) supply continues to come in higher-than-expected, particularly from the U.S., Middle East OPEC, Russia and Libya.”

Output from the world’s top-3 producers Russia, the United States and Saudi Arabia, broke through 33 million bpd for the first time in October, meaning these three countries alone now meet more than a third of the almost 100 million bpd of global consumption.

Iraq, the second-largest producer within the Organization of the Petroleum Exporting Countries (OPEC) behind Saudi Arabia, is targeting production capacity of 5 million bpd in 2019, up from 4.6 million bpd currently, Oil Minister Thamer Ghadhban said on Tuesday.

“The market is well supplied, and we see a balanced rather than tight market ahead. This no longer supports our $85 per barrel year-end and 1H19 forecast,” Morgan Stanley said.

Instead, the bank said it expected Brent to average around $77.5 per barrel to mid-2019.

With production rising, inventories are swelling.

U.S. crude stocks climbed by 7.8 million barrels in the week ending Nov. 2 to 432 million, data from the American Petroleum Institute showed on Tuesday.

Despite the well supplied market, Razaqzada warned that it would be “increasingly costly for inefficient producers to maintain output at current levels”.

Venezuela’s crude production was in “free-fall” and could soon drop below 1 million bpd, the International Energy Agency’s Executive Director Fatih Birol warned on Tuesday, down from the more than 2 million bpd it averaged last year.

Oil drops on Iran sanction exemptions, economic concerns

CNBC

  • U.S. sanctions on Iran’s fuel exports were reintroduced on Monday.
  • Washington has granted 180-day exemptions to eight importers, meaning Iran will be allowed to still export some oil for now.

Oil prices slipped on Tuesday, weighed down by exemptions from Washington that will allow Iran’s biggest oil customers to keep buying from Tehran, as well as concerns that an economic slowdown may curb fuel demand growth.

U.S. West Texas Intermediate (WTI) crude futures were at $62.95 a barrel at 0355 GMT, down 15 cents, or 0.2 percent, from their last settlement.

International Brent crude oil futures were down 28 cents, or 0.4 percent, at $72.89 a barrel.

Analysts said expectations of an economic slowdown in coming months were weighing on the fuel demand outlook, while concerns eased on the supply-side after Washington granted eight importers of Iranian oil sanctions waivers that will allow them to continue purchases.

Washington gave 180-day exemptions to eight importers – China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey. These are Iran’s biggest buyers, meaning Iran will be allowed to still export some oil for now.

Jameel Ahmad, head of market research at futures brokerage FXTM said the “sanctions on Iran have been … priced into the oil markets”, and that he would “instead focus more heavily on the global demand outlook because of the ongoing external uncertainties weighing down on economic prospects.”

Ahmad added that he saw a slowdown in economic and fuel demand growth as “more of a risk for oil over the coming months.”

Currency weakness is putting pressure on key growth economies in Asia, including India and Indonesia.

At the same time, the trade dispute between the United States and China is threatening growth in the world’s two biggest economies.

On the supply-side, oil is in ample availability despite the sanctions against Iran as output from the world’s top-three producers, Russia the United States and Saudi Arabia, is rising.

The three countries combined produced more than 33 million barrels per day (bpd) for the first time in October, meaning they alone meet more than a third of the world’s almost 100 million bpd of crude oil consumption.

Amid ample supply, top crude exporter Saudi Arabia has cut its December price for its Arab Light grade for Asian customers by 10 cents per barrel versus November to a premium of $1.60 a barrel to the Oman/Dubai average, state oil company Saudi Aramco said on Monday.

The price pressure on oil has scared off financial traders.

Hedge fund managers were net sellers of petroleum-linked futures and options for a fifth week running last week as concerns about sanctions on Iran evaporated and investors refocused on economic worries.

Portfolio managers have been net sellers of 371 million barrels since the end of September, taking their net long position to the lowest level for 15 months, according to records published by regulators and exchanges.

Brent oil prices dips on rising supply, global market woes

CNBC

  • Global stock markets were hit by renewed concerns about the U.S.-China trade war.
  • Meanwhile, the oil markets also saw signs of rising crude supply from top producers ahead of U.S. sanctions on Iran’s petroleum exports.

Brent oil prices dipped on Tuesday, weighed down by ongoing weakness in global stock markets and by signs of rising global supply despite looming sanctions on Iran’s crude exports.

Front-month Brent crude oil futures were at $77.05 a barrel at 0428 GMT, down 29 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were firmer, however, at $67.16 a barrel, up 12 from their last settlement.

Oil has been caught up in broad financial market slumps this month, with stocks falling again on Monday after reports Washington was planning an additional $257 billion worth of tariffs on Chinese goods if upcoming talks between Presidents Donald Trump and Xi Jinping fail to end a trade war between the world’s two largest economies.

High oil prices are hurting consumers and could dent demand, the executive director of the International Energy Agency (IEA) said on Tuesday.

“There are two downward pressures on global oil demand growth. One is high oil prices, and in many countries they’re directly related to consumer prices. The second one is global economic growth momentum slowing down,” said IEA chief Fatih Birol.

Oil was also being weighed down by signs of rising supply from top producers.

“A Saudi pledge to produce as much oil as possible, and the stock market rout, have sharply reduced concerns about the Nov. 4 implementation of U.S. sanctions against Iran,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Russia has also indicated that it will provide enough oil to meet demand once U.S. sanctions hit Iran from next week.

In a sign that oil supply remains ample despite the looming U.S. sanctions against Iran’s petroleum exports, crude output from the world’s top 3 producers, Russia, the United States and Saudi Arabia, reached 33 million barrels per day (bpd) for the first time in September, Refinitiv Eikon data showed.

That’s an increase of 10 million bpd since the start of the decade and means that these three producers alone now meet a third of global crude demand.

Hedge fund managers continued to liquidate former bullish positions in oil last week, with signs of short-selling appearing for the first time in over a year.

Despite that, Hansen said “given the yet unknown impact on Iran’s ability to produce and export (amid sanctions) … we could see some speculative buying emerge ahead of Nov. 4.”

Iran’s seaborne crude exports, by contrast, have fallen from a 2018-peak of just over 2.5 million bpd in May to around 1.5 million bpd in September and October, Eikon data showed.

Oil falls as investors wary of trade slowdown

CNBC

  • Oil markets remain tense ahead of impending U.S. sanctions against Iran’s crude exports, which are set to start next week.

Oil prices dipped on Monday amid cautious sentiment as a plunge in financial markets last week and dollar strength early this week underscored concerns that growth may be slowing, especially in Asia’s emerging economies.

Front-month Brent crude oil futures were trading down 39 cents, or 0.5 percent, at $77.23 a barrel at 0616 GMT.

U.S. West Texas Intermediate (WTI) crude futures were at $67.31 a barrel, down 28 cents, or 0.4 percent, from their last settlement.

Investors remained wary after hefty losses last week, while a stronger dollar on safe-haven buying puts pressure on the purchasing power of emerging markets.

“Cooling economic conditions and symptoms of softer international trade have exacerbated bearish conditions as (the) growth outlook dims,” said Benjamin Lu of brokerage Phillip Futures in Singapore.

Singapore-based ship tanker brokerage Eastport said stock prices were falling amid policy uncertainty, rising interest rates and disappointing earnings from some companies.

Financial market turmoil may “weigh on investment and consumer spending, reducing trade flows and ultimately hitting demand,” it said.

Hedge funds slashed their bullish wagers on U.S. crude in the latest week to the lowest level in more than a year, the U.S. Commodity Futures Trading Commission said on Friday.

The speculator group cut its combined futures and options position in New York and London by 42,644 contracts to 216,733 in the week to Oct. 23, the lowest level since September 2017.

There were also signs of a slowdown in global trade, with rates for dry-bulk and container ships – which carry most raw materials and manufactured goods – coming under pressure.

On the supply side, however, oil markets remain tense ahead of looming U.S. sanctions against Iran’s crude exports, which are set to start next week and are expected to tighten supply, especially to Asia which takes most of Iran’s shipments.

The tight market in Asia is visible in the low amount of unsold crude oil stored on tankers on waters around Singapore and southern Malaysia, the region’s main oil trading and storage hub.

Just four stationary supertankers are currently filled with crude oil, according to Refinitiv Eikon ship tracking data.

That’s down from around 15 a year ago, and from 40 in mid-2016 during the peak of the supply glut.

In North America, however, there is no oil shortage as U.S. crude oil production has increased by almost a third since mid-2016 to around 11 million barrels per day.

Production is set to rise further. U.S. drillers added two oil rigs in the week to Oct. 26, bringing the total count to 875, the highest level since March 2015, Baker Hughes energy services firm said on Friday.

More than half of all U.S. oil rigs are in the Permian basin in West Texas and eastern New Mexico, the country’s biggest shale oil formation.