Oil rally faces tidal wave of supply

Oil market’s two-year bull run is running into one of its biggest tests in months, facing a tidal wave of supply and worries about economic weakness sapping demand worldwide.

After topping out at more than $75 (Dh275) and $85 a barrel just a month ago, both US crude and Brent futures have grappled with near relentless selling. For a time, prices had some support on hopes that renewed US sanctions on Iran would force barrels off the market.

That changed in the last week. The largest producers — Russia, Saudi Arabia and United States — were all pumping at record or nearrecord levels; the US said it would allow waivers that could allow buyers to keep importing Iranian oil, lessening a supply crunch threat.

Those factors, along with weak economic reports from China and other emerging markets, shifted the conversation back to worries about oversupply, and pushed US futures to lows not seen since April, interrupting an upward move that consistently found support during the rally’s modest pullbacks.

The structure of the US crude futures curve had for months indicated expectations for tighter supply, but future-dated contracts now suggest investors think markets could be awash in oil over the coming months.