2017-06-21 11:15:00
OIL PRICES DOWN 20%
FT - Oil has entered a new bear market, with prices falling to their lowest level this year as rising supplies threaten to derail an effort by some of the world's biggest producers to bring an end to a three-year glut.
Renewed trader concerns about growing production from within the Opec cartel and a reinvigorated US shale industry took global crude benchmarks on Tuesday to the lowest since mid-November with Brent crude sinking towards $45 a barrel.
Prices have fallen more than 20 per cent from their levels in early January, which they last touched in the summer of 2015. A decline of more than 20 per cent from a most recent high is typically considered a bear market.
Crude has now erased all its gains since late last year, when Opec and other producer countries, including Russia, agreed to cut output by 1.8m barrels a day for the first six months of 2017.
A decision in May to extend the original six-month deal for a further nine months has not helped lift sentiment as a growing chorus of traders and analysts question the effectiveness of the supply curbs.
Brent crude, the international benchmark, fell $1.28 cents, or almost 3 per cent, to $45.63 a barrel. West Texas Intermediate, the US marker, dropped by $1.31 to a low of $42.89 a barrel.
Even as global oil demand is expected to rise in the coming months, traders have been focused on supply.
"The future might be bright for oil prices but the present is not," said Tamas Varga at London-based broker PVM. Any immediate price recovery, he said, was "wishful thinking".
Rising output in Libya and Nigeria, which were exempt from the supply deal because of conflict in both countries, have offset cutbacks from their Opec peers. Libya has said it is set to reach its 1m b/d target in the coming weeks after an interim agreement with an oil operator while Nigerian exports from the Forcados terminal are due to resume.
Saudi Arabia's energy minister Khalid Al Falih — who has pledged to do "whatever it takes" to cut excess global stockpiles — said this week that supply and demand was coming into balance but the market needs longer to feel the impact of output curbs.
"Market fundamentals are going in the right direction but, in light of the large surplus in stockpiles over the past years, the cut needs time to take effect," Mr Falih said. Rising production from Libya and Nigeria was not a threat to the deal, he added.
An acceleration in US crude production, despite the fall in prices, has also damaged sentiment. Data on Friday showed a rise in the number of rigs drilling for oil — the 22nd weekly consecutive increase.
Michael Rothman, at energy research company Cornerstone Analytics, noted that Opec's production cuts will manifest themselves meaningfully in large inventory drawdowns in the coming months should global oil demand continue at a robust pace.
"The group taking out approximately 50m barrels per month of crude feedstock is significant in its own right," he said. "The Saudis, in particular, are set on seeing the physical balances tighten with the explicit goal of lifting crude prices."
Olivier Jakob at Petromatrix, a consultancy, said the kingdom would have to try much harder to bring supplies lower. Exports of the country's crude, at about 7m b/d, are still broadly in line with historical averages.
"Exports of crude oil from Saudi Arabia are still in the comfort zone of recent years; they are at the bottom of the comfort zone but not out of it. Compared to history, Saudi Arabia is only doing minimal service to support prices," added Mr Jakob.
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