Business World

Saturday 21 July 2018

Oil has worst week in two years on supply concerns

North Sea volumes rising faster than expected. Photo: PA
North Sea volumes rising faster than expected. Photo: PA

David Gaffen

Oil prices slid more than 3pc on Friday as US futures fell below $60 a barrel for the first time since December on renewed concerns about rising crude supplies.

US and Brent crude futures have slid more than 11pc from this year's peak in late January. Brent fell nearly 9pc for the week while US crude dropped 10pc, the steepest weekly declines since January 2016.

Futures posted a sixth straight day of losses, wiping away the year's gains in a string of high-volume trading sessions, pressured by stronger-than-expected supply figures and a surprising ramp-up of the North Sea Forties Pipeline, which shut earlier in the week.

Turmoil on Wall Street also put pressure on crude. "It's never just one factor that slams the market like this. It's several," said Jim Ritterbusch, president of Ritterbusch & Associates.

Oil services company Baker Hughes said total US onshore rigs rose by 26 to 791, the highest number since January 2017. Drillers have added rigs as oil prices rallied through mid-January.

The market has been pressured by the weak stock market. Also, oil is inversely correlated with the US dollar, which has strengthened as equities markets slid, because it becomes more expensive in other currencies.

Crude volumes in the North Sea Forties pipeline continued to ramp up faster than expected following a restart, a trade source told Reuters.

The news that the line is reaching full rates intensified oversupply worries, said Gene McGillian, director of market research at Tradition Energy in Stamford, Connecticut.

"The idea that it is back up and running normally, combined with the data that show US production is rising, contributes to the overall idea that US production could offset cuts by Opec," said McGillian.

Investors were already worried that rising US crude production will overwhelm efforts by Opec and other nations to cut supply. US output rose to 10.25m barrels per day in the most recent weekly figures, which if confirmed would represent a record. The Baker Hughes figures should mean still more supply in coming months.

On Thursday, OPEC member Iran announced plans to boost production within the next four years by at least 700,000 barrels a day. "We think that surging supply and slowing demand growth will tip the market back into a surplus this year," analysts at Capital Economics said in a note.

Reuters

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