Oil Falls on Oversupply Worries Despite Iran Sanctions

Posted by Michelle Howard
Friday, October 26, 2018

Oil prices dropped on Friday, heading for a third weekly loss after Saudi Arabia warned of oversupply, while a slump in stock markets and concerns about trade clouded the outlook for fuel demand.

Brent crude oil fell $1.12 or 1.5 percent to a low of $75.77 per barrel and was trading around $76.34, down 55 cents, by 1318 GMT. The contract is on course for a weekly loss of over 4 percent and is down more than $10 in three weeks.

U.S. crude was 60 cents lower at $66.73, set for a 3.4 percent loss this week.

"Fears of a supply surplus are rife even as Iranian exports continue to decline ahead of next month’s sanctions deadline," said Stephen Brennock, analyst at London broker PVM Oil.

A global collapse in equities has roiled oil markets this week as Wall Street had its biggest daily decline since 2011, wiping out all of this year's previous gains.

Financial markets have been hit hard by a range of worries, including the U.S.-China trade war, a rout in emerging market currencies, rising borrowing costs and bond yields, and economic concerns in Italy.

There are also signs of a slowdown in global trade, with container and bulk freight rates dropping after rising for most of 2018.

After many months of concern about shortage of supply ahead of U.S. sanctions on Iran, due to begin on Nov. 4, the oil market is beginning to be concerned about possible oversupply and inventories that are rising in many parts of the world.

Saudi Arabia's OPEC governor said on Thursday oil markets could face oversupply by the end of the year.

"The market in the fourth quarter could be shifting towards an oversupply situation as evidenced by rising inventories over the past few weeks," Adeeb Al-Aama told Reuters.

Saudi Energy Minister Khalid al-Falih said there could be a need for intervention to reduce oil stockpiles after increases in recent months.

For now, however, the main focus in the oil market remains on U.S. sanctions and the impact they are having on Iran's oil exports. Washington has said it wants to reduce Iranian oil sales to zero, although this looks unlikely.

Many buyers, including Iran's biggest customer, China, appear to be falling in line, forcing Tehran to store unsold oil on tankers in the hope it can sell the crude once sanctions are lifted.

Reporting by Christopher Johnson in LONDON, Henning Gloystein in SINGAPORE and Aaron Sheldrick in TOKYO

Categories: Middle East Government Shale Oil & Gas

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