Oil bear market shines light on U.S. shale capability

09 November, 2018, 22:58 | Author: Kathy Ellis
  • A Chinese vessel approaching beleaguered Iranian tanker Sanchi to help extinguish a fire that started after it collided with a Chinese vessel off China's shores

Oil peaked in October on concerns that US sanctions on Iran that came into force this week would deprive the oil market of substantial volumes of crude, draining inventories and bringing shortages in some regions. In October, OPEC's crude production hit the highest since 2016 and Russian Federation hiked its output to a record of nearly 11.41 million barrels a day.

Crude futures pulled back midweek as another hefty build in United States inventories helped to ease worries about future supply shortages arising from renewed sanctions against Iran.

Brent crude futures fell 68 cents to $71.39 a barrel by 1453 GMT, having backed off a session high of $73.08, while USA crude futures fell 72 cents to $60.95.

The American Petroleum Institute (API) reported a crude oil inventory build this week, this time of 7.83 million barrels for the week ending November 2.

West Texas Intermediate for December delivery traded 30 cents lower at US$60.37 a barrel on the New York Mercantile Exchange at 10.42am in Singapore.

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"Crude oil imports rose.as uncertainty around tariffs on U.S. imports and sanctions on Iran eased", said ANZ bank following the data release.

The United States, Russia and Saudi Arabia are all now pumping at or near record highs, producing more than 33 million barrels per day (bpd), a third of the world's oil.

Russian output in October is put at a record 11.4 million barrels per day - an increase of almost half a million barrels per day since it began ramping up production levels in May. EIA now sees the nation's output averaging 12.1 million barrels per day (Mmbpd) next year, up from last month's forecast of 11.5 Mmbpd. At the same time, Saudi Arabia - under an global cloud over the murder of journalist Jamal Khashoggi - had pledged to pump more oil to stabilize world markets. That supply overhang trumped indications OPEC may discuss production cuts as soon as this weekend.

That has not started yet: indeed, during October, Chinese crude imports hit an all-time high amid indications that the country's manufacturers were stepping up production ahead of United States tariffs kicking in.

The sanctions, however, are unlikely to cut as much oil out of the market as initially expected as Washington has granted exemptions to Iran's biggest buyers which will allow them to continue buying limited amounts of crude for at least another six months. "The global supply and demand balance does not look very tight next year". "OPEC has put on more crude than we thought and second of all, these waivers are becoming an impediment to price support".

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