Oil Prices Fall on Oversupply Concerns

Oil prices slipped on Friday and are on course for a third weekly decline after Saudi Arabia warned about oversupply, while losses in stock markets and worries over trade weakened outlook for demand.

US West Texas Intermediate (WTI) futures for December delivery fell 0.5 percent to $66.95 a barrel. The contract is headed for a 4.1 percent drop this week.

International benchmark Brent crude futures shed 0.3 percent to $76.66 per barrel and are set for a weekly slump of nearly 5 percent. Brent has lost more than $10 in the last three weeks.

Analyst Stephen Brennock stated that the energy complex is resuming its downward trajectory and more of the same is expected in the near-term with sellers still very much on the prowl and intent on pushing prices lower.

A global crash in equities has disrupted oil markets this week as US stock major indexes hit their largest daily decline since 2011, erasing all of this year’s previous gains.

Financial markets have also been hurt badly by a range of concerns, including the US-China trade war, a rout in emerging market currencies, growing borrowing costs and bond yields, as well as economic worries in Italy.

Signs of a slowdown in global trade are also showing, with container and bulk transport rates falling after rising for most of this year.

Oil Markets to Face Oversupply

After several months of concern over shortage of supply ahead of US sanctions against Iran’s oil industry, due to start on November 4, the market is beginning to worry about potential oversupply and inventories that are increasing in numerous parts of the world.

Adeeb Al-Aama, Saudi Arabia’s Governor at the Organization of the Petroleum Exporting Countries (OPEC), warned on Thursday that oil markets could face oversupply by the end of 2018.

The market in the fourth quarter could be shifting towards an oversupply situation as evidenced by growing inventories over the past few weeks, he said.

OPEC and non-OPEC producers agreed in June to ease on their cuts, but the group stated on Thursday that they might need to change course due to growing inventories and economic uncertainties.   

Saudi Energy Minister Khalid Al-Falih also said there could be a need for intervention to cut oil supplies after gains in recent months. Al-Falih announced on October 22 the kingdom would soon increase production to 11 million barrels per day (bpd) from the current 10.7 million.

As they and other producers raise output, spare capacity will tighten by the same amount, according to Al-Aama.

For now, however, the main focus in the market remains on US sanctions and the impact they are having on Iran’s crude exports. US President Donald Trump’s administration aims to reduce Iranian oil sales to zero, but their goal appear to be unlikely.

Several buyers including China, Iran’s major customer, seems to be falling behind, prompting OPEC’s third biggest producer to keep unsold oil on tankers in hopes of selling the crude once sanctions are lifted.

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