Oil prices slip on concerns of looming oversupply, economic downturn

The American Petroleum Institute said late on Wednesday that crude inventories rose by 8.8 million barrels in the week to November 9 to 440.7 million. (Reuters)
Updated 15 November 2018
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Oil prices slip on concerns of looming oversupply, economic downturn

  • Since early October, oil prices have lost around a quarter of their value as supply soars
  • China is the world’s biggest oil importer and the second-largest crude consumer

SINGAPORE: Oil prices slipped on Thursday, weighed down by rising supply going into a market in which consumption is expected to slow down amid a glum economic outlook.
Front-month Brent crude oil futures were trading at $65.88 per barrel at 0441 GMT, down 24 cents, or 0.4 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were at $55.96 a barrel, down 29 cents, or 0.5 percent.
Since early October, oil prices have lost around a quarter of their value as supply soars just as demand is expected to slow down along with an economic downturn.
“Asian refiners and consumers we speak with are mentioning initial concerns of slowing demand,” said Mike Corley, president of Mercatus Energy Advisers.
US bank Morgan Stanley said in a note on Wednesday that China’s economic “conditions deteriorated materially” in the third quarter of 2018, while analysts at Capital Economics said China’s “near-term economic outlook still remains downbeat.”
China is the world’s biggest oil importer and the second-largest crude consumer.
Meanwhile, data released this week showed economic contraction in industrial powerhouses Japan and Germany in the third quarter.
At the same time, supply has been surging, especially due to a 22 percent rise in US crude oil production this year to a record 11.6 million barrels per day (bpd).
“Producers...have more barrels than they can sell at the moment,” said Mercatus Energy Advisers’ Corley.
As a result, oil inventories are rising. The American Petroleum Institute said late on Wednesday that crude inventories rose by 8.8 million barrels in the week to Nov. 9 to 440.7 million, compared with analyst expectations for an increase of 3.2 million barrels.
Fearing a renewed glut like in 2014, when prices crashed under the weight of oversupply, the Organization of the Petroleum Exporting Countries (OPEC) is discussing supply cuts.
To do so successfully, OPEC — under the de-facto leadership of Saudi Arabia — will need Russia on its side, which is not an OPEC member.
A joint effort between OPEC and Russia to withhold supply from 2017 was a major contributor to crude price rises last year and in the first half of 2018.
“Russia and OPEC and Saudi Arabia — they are observing the market. If they see that there is dis-balance between supply and demand, (they) will of course take a joint action to reduce supply,” said Kirill Dmitriev, head of Russian Direct Investment Fund, the country’s sovereign wealth investment body.


Oil rises after US Navy destroys Iranian drone

Updated 41 min 47 sec ago
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Oil rises after US Navy destroys Iranian drone

  • The International Energy Agency is revising its 2019 global oil demand growth forecast to 1.1 million barrels per day
  • Speculators have exited options positions that could have provided exposure to higher prices in the next several years

TOKYO: Oil prices rose more than 1 percent on Friday after the US Navy destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows, again raising tensions in the Middle East.
Brent crude futures were up 82 cents, or 1.3 percent, at $62.75 by 0100 GMT. They closed down 2.7 percent on Thursday, falling for a fourth day.
West Texas Intermediate crude futures firmed 61 cents, or 1.1 percent, at 55.91. They fell 2.6 percent in the previous session.
The United States said on Thursday that a US Navy ship had “destroyed” an Iranian drone in the Strait of Hormuz after the aircraft threatened the vessel, but Iran said it had no information about losing a drone.
The move comes after Britain pledged to defend its shipping interests in the region, while US Central Command chief General Kenneth McKenzie said the United States would work “aggressively” to enable free passage after recent attacks on oil tankers in the Gulf.
Still, the longer-term outlook for oil has grown increasingly bearish.
The International Energy Agency (IEA) is reducing its 2019 oil demand forecast due to a slowing global economy amid a US-China trade spat, its executive director said on Thursday.
The IEA is revising its 2019 global oil demand growth forecast to 1.1 million barrels per day (bpd) and may cut it again if the global economy and especially China shows further weakness, Fatih Birol said.
“China is experiencing its slowest economic growth in the last three decades, so are some of the advanced economies ... if the global economy performs even poorer than we assume, then we may even look at our numbers once again in the next months to come,” Birol told Reuters in an interview.
Last year, the IEA predicted that 2019 oil demand would grow by 1.5 million bpd but had already cut the growth forecast to 1.2 million bpd in June this year.
Speculators have exited options positions that could have provided exposure to higher prices in the next several years, market participants said on Thursday.
US offshore oil and gas production has continued to return to service since Hurricane Barry passed through the Gulf of Mexico last week, triggering platform evacuations and output cuts.
Royal Dutch Shell, a top Gulf producer, said Wednesday it had resumed about 80 percent of its average daily production in the region.