The news coming out of the International Energy Agency (IEA) this past week wasn’t good for energy bulls. The agency reported that not only was global oil demand slowing at a faster pace than previous predicted, but also OPEC had opened its spigot of production so that oil stocks in OECD countries were “swelling to levels never seen before.
“All [the agencies] have confirmed what most of us have been expecting on the supply side,” said Jim Ritterbusch of Ritterbusch & Assoc. That means downsizing demand expectations.
Crude oil prices, which rose as high as $53 per barrel in June, have since gyrated between $40 and $49 a barrel over past month. Ritterbusch sees a bottom at $39 as the market digests the latest news. U.S. oil futures prices fell 88 cents Friday to close $43.03 a barrel, the lowest close since August. 10. Prices fell 6.2% for the week.
World oil output of 96.9 million barrels per day fell by 0.3 million barrels per day in August compared to previous year, largely due to non-OPEC production, but that was offset primarily by OPEC’s “near-record” supply.
Kuwait and the UAE goosed production while Saudi Arabia had near record output, and Iran ramped up exports. Saudi Arabia, noted the IEA, has raised output since 2014 and has now overtaken the U.S. as the world’s largest producer.
Furthermore, increased Iranian crude production and exports are “just shy of the pre-sanction production levels,” notes Michael Tran, commodity strategist with RBC Capital Markets, and his colleagues in its spotlight report: Thinking Out Loud, the Crude Crusade.
Tran adds that there might be “more here than meets the eye.” It appears Iran is cutting export prices toward the end of the month, perhaps due to “having a difficult time placing barrels each month,” Tran speculates.