Oil prices drop as ‘trifecta of trouble’ may cause glut

Ann Santiago
November 9, 2018

The decline in prices over the past weeks follows a rally between August and October when crude rose ahead of the re-introduction of sanctions against Iran's oil exports on November 5.

Oil prices fell to multi-month lows on Friday as global supply increased and investors anxious about the impact on fuel demand of lower economic growth and trade disputes.

Even with US sanctions on Iranian oil in place, investors believe there is more than enough supply to meet demand.

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.

President Trump on the Iran sanctions and efforts to keep oil prices down.

Preventing crude from rising further, however, was record U.S. crude production, which hit a whopping 11.6 million bpd in the week ending Nov 2, according to Energy Information Administration (EIA) data released on Wednesday.

"Knowingly providing these services to sanctioned Iranian shipping companies will result in the imposition of USA sanctions", Hook told reporters. Analysts had predicted a draw of 2.572 million barrels for the week. Gold edged higher, but oil dipped as fears continue to grow that too much oil is emerging as Russian Federation, the Saudis and the USA boost production.

And Saudi production has recently been averaging a record 10.7 million barrels per day.

"Bernstein Energy expects "Iranian exports will average 1.4-1.5 million barrels per day (bpd)" during the exemption period", down from a peak of nearly 3 million bpd in mid-2018. That supply overhang trumped indications OPEC may discuss production cuts as soon as this weekend.

Given all these factors, Jim Cramer, host of CNBC's Mad Money, stated that USA oil prices are in a "ferocious" bear market: "Oil is collapsing guys, it's collapsing;I could make a case for the $40s here - I'm not kidding". Demand is also slowing from emerging markets due to the strength of the dollar.

The selling pressure around crude oil remains unabated so far this week, intensifying the breakdown of the $62.00 mark per barrel today, levels last seen in March.

Production has not just risen in the United States, but also in many other countries, including Russia, Saudi Arabia, Iraq and Brazil, stoking producer concerns of a return of oversupply that depressed oil prices between 2014 and 2017. Last month the Joint Ministerial Monitoring Committee said the group may need to change course and begin cutting production once again. American oil inventories grew at more than twice the anticipated pace last week, a government report showed on Wednesday.

That will have profound implications not just for oil prices but, ultimately, geopolitics.

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