Oil slump signals growing surplus
Oil notched its longest losing streak in four years as expanding U.S. stockpiles overshadowed supply concerns from the Persian Gulf to Latin America.
Futures fell as much as 1.4 per cent in New York on Thursday, extending the decline to a ninth day. The last time crude registered such a downtrend was mid-2014. American oil inventories grew at more than twice the anticipated pace last week, a government report showed on Wednesday. That supply overhang trumped indications OPEC may discuss production cuts as soon as this weekend.
Crude has tumbled 20 per cent since touching a fouryear high last month as apprehension over sanctions targeting Iranian oil exports evaporated, in part because of exemptions handed to some of the Islamic Republic’s biggest customers. U.S. President Donald Trump said the waivers were intended to soften the blow to global crude markets.
“Most of this selling pressure is related to the removal of fears concerning tight supplies from the drop in Iranian exports and the granting of those temporary waivers,” said Gene McGillian, a senior analyst and broker at Tradition Energy.
Consultant FGE estimated the waivers granted to China, India and six other nations will allow Iran to continue shipping 1.2 million to 1.7 million barrels a day, more than previously expected.
“OPEC and Russia may use cuts to support prices at US$70 a barrel,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank in Copenhagen. “But the U.S. sanctions waivers could prevent prices from breaking above US$80.”
West Texas Intermediate crude for December delivery declined 47 cents to US$61.20 a barrel at 10:54 a.m. on the New York Mercantile Exchange.
Brent futures for January settlement slipped 44 cents to US$71.63 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a US$10.23 premium to WTI for the same month.
At a gathering scheduled for this weekend in Abu Dhabi, OPEC and allied producers will discuss scenarios including a second production U-turn that would curb output next year, according to delegates. Pressure from the U.S. to lower prices probably will decrease now that the nation’s midterm elections are over, Saxo Bank’s Hansen said.
Producers including Saudi Arabia and Russia had opened the taps earlier this year following unprecedented pressure from Trump.
Last week’s increase in U.S. crude inventories was the seventh week of gains, the longest stretch since early March, according to Energy Information Administration data. Domestic production surged to a record 11.6 million barrels a day, while stockpiles at the storage hub in Cushing, Okla., climbed by 2.42 million barrels.