Published: Thu, November 15, 2018
Markets | By Noel Gibbs

Oil prices slip on concerns of looming oversupply, economic downturn

Oil prices slip on concerns of looming oversupply, economic downturn

OPEC warned on Tuesday that an oil supply glut could emerge in 2019 as the world economy slows and supply from rival producers rises more quickly than expected, building a case for a policy U-turn to cutting output at a meeting December 6.

U.S. West Texas Intermediate (WTI) crude oil futures ended Wednesday's session up 56 cents, or 1 percent, at $56.25 per barrel.

Front-month Brent crude oil futures were trading at $65.88 per barrel at 0441 GMT, down 24 cents, or 0.4 percent, from their last close.

Top crude exporter Saudi Arabia has watched with alarm how supply has started to outpace consumption, fearing a repeat of a glut that brought a price crash in 2014.

Together with Russian Federation and other non-OPEC producers, OPEC had agreed in June to boost supply after pressure from U.S. President Donald Trump to lower prices, partially unwinding output cuts that began in January 2017.

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Brent oil prices have plunged 25 per cent since reaching a four-year high of more than $86 per barrel in early October. OPEC's dire forecast for 2019 demand came at a time of steadily rising American production and stockpiles.

"Trump's message was meant to keep OPEC in check" after the group signaled they may agree to cut production, Makiko Tsugata, a senior analyst at Mizuho Securities Co., said by phone from Tokyo.

The prices of the U.S. dollar against the Iranian Rial saw a decline of around 10 percent from the closing hours of trading on Saturday until Wednesday - the end of trading in the week.

In August, the price of Brent crude oil has exceeded $75 per barrel.

Oil markets are being pressured from two sides: a surge in supply and increasing concerns about an economic slowdown. "While the countries buying the crude oil are going to pay more for the product, the oil producing countries are expected to make more money in the process", he said.

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U.S. officials have already said the sanctions would be meant to bring down Iran's oil exports to zero.

The agency raised its forecast for oil output growth from countries outside the OPEC to 2.4 million bpd this year and 1.9 million bpd next year.

Saudi Energy Minister Khalid al-Falih said on Monday that Opec agreed there was a need to cut oil supply next year by around one million barrels per day from October levels to prevent oversupply.

Most analysts expect United States output to climb above 12-million barrels a day within the first half of 2019.

The U.S. has meanwhile allowed some of its allies - Greece, India, Italy, Japan, South Korea, Taiwan and Turkey - as well as rival China to continue to purchase Iranian oil despite re-imposed sanctions, as long as they work to reduce their imports to zero.

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