As the old adage of “location, location, location” is well known in the real estate market, current trends suggest we can apply “supply, supply, supply” to the current oil market.
Benchmark Brent crude fell below $45 a barrel for the first time since August. This was its sixth decline in seven days with a total drop of $6 in that time span. The latest dip was due to new data this week showing that U.S. stockpiles were closing in on record highs which were reached this past April. The weekly EIA numbers coupled with OPEC stating it could still produce a daily surplus above 500,000 barrels by 2016 seem to be the driving forces behind the price decline. As one New York analyst stated, “We’re going to have a lot of oil on our hands with the builds we’re seeing, talk of rising tanker storage.” With oil traders already closely watching the global tanker traffic, Reuters shipping data showed tankers with nearly 20 million barrels ready to hit the waters destined for the U.S. from Iraq. This additional supply will add to the many tankers currently waiting to offload in the Gulf Coast.
In U.S. economic news, consumer sentiment has the dollar stronger today further weakening oil prices.
In international market news, Russia, already facing competition from Saudi Arabia in some parts of Europe, will now have to deal with Iran as it plans to increase its shipping of crude to Europe as its sanctions are lifted. Europe accounts for 70% of Russia’s exports and this inflow of Iranian oil could cut Russian export prices, further hurting their economy.