Bad week for oil as Iran supply fears subside
Oil extended its slide to six-month lows as the US softened its crackdown on Iranian exports and American supplies surged, easing concerns of an impending shortage.
Futures slumped 6.3pc this week, the biggest drop since early February. The US has agreed to let eight countries - including Japan, India and South Korea - keep buying Iranian oil after sanctions kick in this weekend to prevent a spike in prices, a senior administration official said.
"Reduced demand and the idea that we're going to have ample supply seems to have eaten up a lot of the market's strength this year," said Gene McGillian, senior analyst and broker at Tradition Energy.
Oil's surge to a four-year high in early October has unravelled as a rout in global equities stokes concern that fuel demand will suffer. Prices are now approaching a bear market.
"The market has moved from expectations of massive supply scarcity in the fourth quarter to quite opposite expectations of a looming oversupply," said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. "The focus has shifted, leading to a sell-off by hedge funds, and that's causing the slide."
West Texas Intermediate for December delivery declined 55 cents to settle at $63.14 a barrel on the New York Mercantile Exchange. Total volume traded was 8pc above the 100-day average.
Brent for January settlement fell six cents to close at $72.83 on the London-based ICE Futures Europe exchange. The contract sank 6.2pc this week, a fourth consecutive week of declines. The global benchmark crude closed at a $9.55 premium to January WTI.
US President Donald Trump said talks with China - the leading importer of Iranian oil - are going well and he thinks the two countries will reach an agreement on trade. China is among eight countries set to receive a waiver, according to two people familiar with the discussions who asked not to be identified. US Secretary of State Michael Pompeo said that additional details would be released Monday.
Opec increased output by 430,000 barrels to 33.33 million barrels a day in October, the highest since 2016, according to a Bloomberg survey of officials and analysts, and ship-tracking data. Saudi Arabia raised production by 150,000 barrels a day to 10.68 million a day, the highest in Bloomberg data going back to 1962, while Iranian volumes slipped by 10,000 barrels a day to 3.42 million.
Hedge funds reduced bullish combined WTI and Brent bets to the lowest level in 15 months, according to Commodity Futures Trading Commission and ICE data.
The European Union as a whole won't get a waiver, Pompeo said.
In a joint statement on Friday, the EU's high commissioner and the finance and foreign ministers from the UK, Germany and France said they "deeply regret the further re-imposition of sanctions by the United States". They said they will work "to protect European economic operators engaged in legitimate business with Iran", including preserving "effective financial channels" and continuing "Iran's export of oil and gas."
Global benchmark Brent crude has fallen about 15pc from over $85 a barrel last month on increasing speculation that at least some nations would get waivers, as well as signs that other Opec members will pump more to offset any supply gap.
Trump's decision to withdraw from the nuclear agreement infuriated Iran as well as the other countries that negotiated the deal and who still say it's the best chance to constrain the Islamic Republic's nuclear ambitions. But the US has rebuffed them and gone ahead with its sanctions plan, arguing that nations, banks and businesses worldwide will decide they'd rather do business with the US than Iran.
A White House statement released last Friday said more than 700 "individuals, entities, vessels and aircraft" will be sanctioned. They include Iranian banks, shipping companies and oil exporters.
"This is a whole different level of escalation than what could have occurred," said John Smith, who left Treasury in May as a civil servant leading the unit that issues and enforces sanctions and is now a partner at the law firm Morrison & Foerster. "The message that this administration has given around the world has been uncompromisingly tough and aggressive: It's our way or the highway."