Oil falls as sanction waivers raise concern about well-supplied market

Singapore — Oil prices dipped on Wednesday as rising output and US sanction waivers that allow Iran’s biggest buyers to keep taking its crude reinforced the outlook for a well-supplied market.

Front-month Brent crude oil futures were at $72.04 a barrel at 3.37am GMT, down 9c, or 0.1%, from their last close.

US West Texas Intermediate (WTI) crude was at $61.92, down 29c, or 0.5%, from its last settlement.

Brent and WTI have slumped by 17.4% and 19.7% from recent peaks touched in early October.

US bank JPMorgan said the “sell-off in oil was due to excessive crude” from rising production “whilst Iranian supply was still in the market”.

Washington re-imposed sanctions against Iran’s oil exports on Monday but granted waivers to its biggest customers, allowing them limited imports for the next 180 days.

Refinitiv Eikon data showed Iranian crude exports have fallen to 1-million barrels a day so far in November, down from about 3-million barrels a day in mid-2018.

But Iran supply is expected to rise after November as waivers are used to start ordering more Iranian oil.

“Waivers are likely to be more extensive than the market expected,” energy consultancy FGE said, estimating that waivers overall would allow 1.2-million to 1.7-million barrels a day of exports.

What’s more, a flotilla of supertankers carrying about 9-million barrels of Iranian oil worth about $650m is sitting outside China’s Dalian port.

Most ships arrived in the past 30 days, shipping data showed, as Iran tried to get as much crude as possible into markets before the sanctions took effect.

“With the waivers, prices can be managed in the $70-$80 a barrel range, with the upside at around $85 a barrel and the downside limited to $65 a barrel,” FGE said.

Wave of supply

Beyond Iran, US bank Morgan Stanley said “supply continues to come in higher-than-expected, particularly from the US, Middle East Opec, Russia and Libya”.

Output from the world’s top-three producers Russia, the US and Saudi Arabia, broke through 33-million barrels a day for the first time in October. These three countries now meet more than a third of global consumption.

Iraq, second-largest producer in oil cartel Opec, plans to raise output to 5-million barrels a day in 2019, from 4.6-million barrels a day currently.

Eyeing the wave of new supply, Morgan Stanley lowered its year-end and first-half 2019 Brent price forecast from $85 a barrel to $77.50.

Inventories are also swelling.

US crude stocks climbed by 7.8-million barrels in the week ending November 2 to 432-million, data from the American Petroleum Institute showed on Tuesday.

JPMorgan said: “Global floating storage has increased by 3.6-million barrels since July 2018 to 33.9-million barrels.”

Despite the well-supplied market, JP Morgan still warned “the risk to supply remains very high” due to geopolitical risk and a “lack of spare capacity”.

Part of this risk comes from Venezuela, where crude production is in “free-fall” and could soon drop below 1-million barrels a day, the International Energy Agency’s executive director, Fatih Birol, said on Tuesday, down from the more than 2-million barrels a day it averaged last year.

Reuters