Oil Slides Below $80 Over Weak Demand Outlook
Global market prices of crude oil declined below $80 per barrel as inventories rose due to strong US oil production, ANZ Bank said in a Friday note.
Data shows that US commercial crude stockpiles increased 17.5 million barrels over the past two weeks, boosting total inventories to 439 million barrels.
The US produced 13.2 million barrels per day of oil and weaker demand from refineries also added to inventories, the bank noted.
The International Energy Agency also noted global oil markets will not be as tight as expected this quarter, which also weighed on sentiment, ANZ Bank said. Record output from the US and other non-OPEC members are helping ease supply tightness.
The conflict in Israel also appears contained, preventing major impacts on oil production. However, tightening sanctions against Russia by the European Union and the US are sparking concerns about flows from Russia, the bank said
Brent crude stood at US$78.10/b and West Texas Intermediate crude was at US$73.59/b at last look early Friday.
Energy markets came under pressure yesterday with ICE Brent settling 4.63% lower, which took it below US$77.50/bbl and to its lowest level since July.
There was little in the way of fresh fundamental developments behind the move. Instead, a break below US$80/bbl appears to have brought a fair amount of technical selling.
Weakness in time spreads coincided with the sell-off in the flat price. In fact, the prompt ICE Brent time spread is now trading in contango, ING commodities strategist said in a note, suggesting little concern over tightness in the market at least in the short term.
It has become clearer that the oil balance for the remainder of this year is not as tight as initially expected, ING strategists added.
Analysts said higher-than-expected supply has eroded a large amount of the expected deficit over 4Q23. And as things stand, the market is still expected to return to surplus in 1Q24
However, prices are trading down at levels which will raise some concerns among OPEC members, particularly Saudi Arabia.
The price weakness means that it is increasingly likely that the Saudis will roll over their additional voluntary cut of 1MMbbls/d into early next year.
Doing this should help erase the expected surplus and provide some support to the market. There will be growing noise around OPEC policy in the coming weeks with the group set to meet in Vienna on 26 November.
While gasoil cracks have weakened from their high levels seen over the summer, they remain at a relatively elevated level with the prompt ICE gasoil crack trading above US$26/bbl.
The middle distillate market remains tight and the recent outage at the 615Mbbls/d Al Zour refinery in Kuwait will not help.
Gasoil inventories in the ARA region continue to edge lower, falling by 39kt over the last week to 1.68mt.
This is the lowest level seen for this time of year in at least 10 years. It is a similar story of tightness for distillate stocks in the US.
