Crude oil futures ticked down during European morning trading Thursday on increased output from Saudi Arabia and a build in US stocks, although supply concerns muted the downward move somewhat.
At 0930 GMT Thursday, the December ICE Brent crude futures contract was down $0.14/b from Wednesday’s settle at $86.15/b, while the NYMEX November light sweet crude contract was down $0.12/b at $76.29/b. Looking firstly at increased output, Saudi Arabia’s spare capacity currently stands at 1.3 million b/d, with the country having increased its crude production to 10.7 million b/d, oil minister Khalid al-Falih said Thursday.
Falih said on Wednesday that the kingdom is currently pumping at close to its all-time high, with November output expected slightly higher. On top of this, Russia hit record production of 11.356 million b/d in September, with potential to boost output by another 200,000-300,000 b/d within several months, the country’s energy minister Alexander Novak said at the Russia Energy Week forum in Moscow this week. Bearish pressure was also added by a significantly greater build in US crude stocks than had been expected in the market. Energy Information Administration data released Wednesday showed that US commercial stock levels jumped 7.98 million barrels to 403.96 million barrels during the week to September 28, a much larger build than the 2.76 million barrels expected by analysts.
Looking at the bigger picture though, crude prices are still largely being supported by supply concerns as a result of the looming US sanctions on Iran, meaning that bearish pressure is only having a limited impact.
“What would normally be bearish news is also falling on deaf ears,” Commerzbank analysts said in a morning note. With expectations that Iranian crude and condensate exports will fall once the sanctions takes effect on November 5 to 1.1 million b/d then to 800,000 b/d by Q4 2019, down from 2.91 million b/d in April, according the S&P Global Platts Analytics data, tightness in the market is inevitable.
“The last quarter of the year promises to be tight and it is reflected in the strengthening of the prices,” PVM analysts said in a morning note Thursday. Concerns also surround how likely other countries will be to pick up the production slack. “One has the impression that production is being scaled up only half-heartedly, which raises questions about oil producers’ ability to react more proactively,” Commerzbank analysts said.
The market will continue to keep an eye on the bullish nature of the market — which has recently resulted in many analysts revising their forecasts upward — with concerns over how much further prices will rise. “Whilst we are not explicitly forecasting Brent to rise to $100/b, we see material risks of this coming to fruition,” said MUFG, in a quarterly survey of top banks and oil analysts by S&P Global Platts.
Pix: Crude Oil Pipeline
