Since the start of November, the two-year bull-run in the energy sector is facing one of its biggest challenges. Within the oil market universe, there are growing concerns of a global economic slowdown and oil demand following suit as the continued price collapse, almost 15%, from its October highs.
Last month we saw the oil market touch multi-year highs at more than $75 and $85 a barrel for WTI and Brent respectively in response that prices would have support from renewed U.S. oil export sanctions on Iran which would force barrels off the market.
In the last week however, the three largest oil producers, Russia, Saudi Arabia and the U.S., all said they were pumping oil at record highs. The U.S. did indicate it would allow waivers to buyers to keep importing Iranian oil which would lessen the threat of a supply crunch. This, along with a recent weak economic report out of China and other emerging markets, have shifted inventories back toward oversupply and push U.S. futures to lows.
The U.S. had forecasted for several months expectations of tighter supply, but now advisers think markets could be immersed in oil over the months to come.
Jim Rittersbusch, president of Ritterbusch & Associates says, “The magnitude of recent selling is strongly suggesting that global oil demand is weaker than expected as a result of tariff issues, especially between the U.S and China.”
West Texas Intermediate (WTI) crude futures fell below $65 a barrel, with a level that had stood firm in previous selloffs during the spring and fall months. For the last two weeks bullish bets have notably declined to their lowest levels in over a year.
Sparing several countries of the threat of economic penalties, the U.S. said it will temporally grant several countries including South Korea and Turkey to keep importing Iranian oil. Should it become necessary, OPEC producers won’t be able to add more supply, particularly with production in Iran, Venezuela and Libya.
“A loss of 1 million bpd from Iran, further declines in Venezuela, coupled together with geopolitical disruption in Libya and Nigeria could easily wipe out what little spare capacity we have left,” Bernstein analysts said.
- OPEC output led by Saudi Arabia rose to levels not seen in two years.
- In August, U.S. production hit a record 11.3 million barrels.
- Russia’s output rose to 11.4 million bpd.