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

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UPDATE 9-Oil prices drop as ‘trifecta of trouble' may cause glut

* U.S. crude output tripled since 2008: https://tmsnrt.rs/2D82k38

* China can still import some Iranian crude

* U.S. output to top 12 mln bpd by mid-2019 -EIA (New throughout, updates prices, market activity and comment;new byline, changes dateline, previous LONDON)

By Jessica Resnick-Ault

NEW YORK, Nov 8 (Reuters) - Oil prices fell near three-monthlows on Thursday, surrendering early gains as investors focusedon swelling global crude supply, which is increasing morequickly than many had expected.

Prices rose early in the session when Chinese data showedrecord oil imports. But the slump resumed as the market focusedon record U.S. crude production and signals from Iraq, Abu Dhabiand Indonesia that output will grow more quickly than expectedin 2019.

"There's a trifecta of trouble created by U.S. stockpilebuilds, OPEC overproduction and the watering down of Iransanctions," said Bob Yawger, director of futures at Mizuho inNew York.

Brent crude futures LCOc1 , the global benchmark, fell 87cents to $71.20 a barrel by 11:41 a.m. EST (1641 GMT), slidingoff the session high of $73.08. U.S. crude futures CLc1 fell61 cents to $61.06.

Earlier this week, Brent dropped to its lowest sincemid-August. urn:newsml:reuters.com:*:nL8N1XH5VPurn:newsml:reuters.com:*:nL4N1XI3WR

China's crude imports rose to 9.61 million barrels per day(bpd) in October, up 32 percent from a year earlier, customsdata showed.

China will still be allowed to import some Iranian crudeunder a waiver to U.S. sanctions that will enable it to purchase360,000 bpd for 180 days, two sources familiar with the mattertold Reuters on Tuesday. urn:newsml:reuters.com:*:nB9N1X603M

U.S. crude output reached a new record high of 11.6 millionbpd in the latest week and the country has now overtaken Russiaas the world's largest oil producer. The move higher inproduction was a large jump, "not just a tick," Yawger said.

The U.S. Energy Information Administration said this week itexpects output to top 12 million bpd by the middle of 2019,thanks to shale oil. EIA/M

Even with U.S. sanctions on Iranian oil in place, investorsbelieve there is more than enough supply to meet demand. Waivers granted to the sanctions intensify the market'sperception that sanctions may not limit crude supply as much asinitially expected.

This view is reflected in price charts showing thefront-month January Brent futures contract trading at a discountto February. This price structure, known as contango,materializes when market players believe there is a supply glutand decide to store oil rather than sell it. This creates aneven larger pool of unsold crude.

Some market watchers believe the Organization of thePetroleum Exporting Countries and allies including Russia maytake steps to reduce supply.

"OPEC and Russia may use (production) cuts to support $70per barrel," said Ole Hansen, head of commodity strategy at SaxoBank. urn:newsml:reuters.com:*:nL8N1XI5V2

GRAPHIC: U.S. crude oil output hits record 11.6 mln bpd:   https://tmsnrt.rs/2PfIZEH
FACTBOX-The knowns and unknowns of U.S. Iran oil sanction
waivers    urn:newsml:reuters.com:*:nL8N1XI4QQ
COLUMN-Russia and Saudi Arabia's oil-market management challenge
(Additional reporting by Amanda Cooper in London and HenningGloystein in Singapore; editing by Dale Hudson and DavidGregorio) ((amanda.cooper@thomsonreuters.com; +442075423424; ReutersMessaging: amanda.cooper.thomsonreuters.com@reuters.net;Twitter: https://twitter.com/a_coops1))

This article appears in: Politics , Stocks , World Markets , Commodities

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