Oil prices decline as the supply soars
On Thursday, oil prices declined, compelled by rising supply going into a market in which consumption is expected to slow down amid a glum economic outlook.
Since the last close, front-month Brent crude oil futures were trading at $65.88 per barrel at 0441 GMT, down 24 cents (0.4 percent).
U.S. West Texas Intermediate (WTI) crude futures went down 29 cents (0.5 percent), which were at $55.96 a barrel.
Since early October, the price of global benchmark Brent went down by more than 20 percent, bringing in the biggest oil prices decline since 2014.
President of Mercatus Energy Advisors Mike Corley said, “Asian refiners and consumers we speak with are mentioning initial concerns of slowing demand.”
China is the biggest oil importer of the world and also the second largest crude consumer. U.S. bank Morgan Stanley made a stern remark on the economy of China, saying the “conditions deteriorated materially” in the third quarter of 2018. On the other hand, Capital Economics analysts’ said China’s “near-term economic outlook still remains downbeat.”
Meanwhile, economic contractions during the third quarter in industrial powerhouses Germany and Japan could be seen in the data released this week.
“Producers…have more barrels than they can sell at the moment,” commented Corley on the surge in supply. This year, there has been a 22 percent increase in U.S. crude oil production to a record 11.6 million barrels per day.
This has resulted in a rise of oil inventories. Late on Wednesday, the American Petroleum Institute said the crude inventories rose by 8.8 million barrels in the week to Nov. 9 to 440.7 million. The expected increase by the analysts was of around 3.2 million barrels.
The Organization of the Petroleum Exporting Countries (OPEC) fears a renewed glut similar to that in 2014, when prices were crushed due to oversupply. As a result, OPEC is in discussion to cut supplies.
In order to do so successfully, OPEC, which is running under the leadership of Saudi Arabia, will need to join hands with Russia, which is not an OPEC member.
OPEC and Russia’s joint efforts to withhold supply from 2017 contributed crucially to crude price rises in the previous year and also the first half of 2018.
Kirill Dmitriev, head of Russian Direct Investment Fund, said,”Russia and OPEC and Saudi Arabia – they are observing the market. If they see that there is dis-balance between supply and demand, (they) will of course take a joint action to reduce supply.”
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