Oil prices ready for sharp decline on record US output

London — Oil prices were on track for sharp weekly declines on Friday as surging US output countered production losses in sanctions-hit Iran and Venezuela.

Brent crude oil futures were at $70.47 a barrel at 11.15am GMT, down 28c and set for their first weekly loss after five weeks of gains. US West Texas Intermediate (WTI) crude futures were down 6c at $61.75, poised for a second straight weekly decline.

“Even with deep losses in supply from Iran and Venezuela, as well as a few other countries around the world, oil cartel [and its allies, known as] Opec+ will still need to hold back production to balance the market,” SEB analyst Bjarne Schieldrop said in a note, adding that this is a reflection of the ongoing output growth in the US.

US crude oil production reached a record 12.3-million barrels per day (bpd) last week, rising by about 2-million bpd over the past year. Exports of US crude broke through 3-million bpd for the first time this year, according to data from the Energy Information Administration (EIA).

Rising US oil production has helped offset some of the disruption as US sanctions against Iran and Venezuela have added to supply cuts led by the Middle East-dominated Opec and Opec+.

Production from Saudi Arabia could edge higher in June to meet domestic demand for power generation, though output will remain within its quota in the supply pact, sources familiar with the kingdom’s policy said.

The world’s top crude exporter is expected to produce about 10-million bpd in May, slightly higher than April but still below its 10.3-million bpd quota under the Opec-led deal, industry sources said.

Traders said that prices were also pressured by Russia resuming supply of clean oil through the Druzhba pipeline towards western Europe after several countries halted imports last week because of contamination.

Poland, Hungary and the Czech Republic are offering their domestic refiners about 8-million barrels of oil from strategic reserves after supplies from the Druzhba pipeline were halted, industry sources said on Friday.

In the US, analysts say supply will rise further as its export infrastructure is improved.

“One of the things that we can see in the near future is the de-bottlenecking of the Permian basin in the US through new pipelines and export capacity,” said Will Hobbs, chief investment officer for Barclays Investment Solutions. “This will connect the world’s largest shale basin to the global oil market.”

Reuters