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Oil under pressure from rising output, but Iran sanctions loom

Oil under pressure from rising output, but Iran sanctions loom

Brent has fallen by over 12 percent since the beginning of October, while WTI has lost more than 13 percent in value.

Crude futures traded choppily on Wednesday, with Brent rising by $1 a barrel earlier in the session before retreating.

Prices were pressured as US inventories were expected to rise for a sixth straight week as other top producers Saudi Arabia and Russian Federation signaled potential output increases.

That will offset the decline in Iranian exports that could tighten supply.

"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 production for Chevron (NYSE:CVX) was also higher and profits were healthy as the company more than doubled its earnings for the quarter from previous year.

According to API data, the six-week running tally of crude oil inventory gains equals 27 million barrels.




In a bearish signal, the American Petroleum Institute reported USA crude inventories rose 5.7 million barrels last week, more than analyst forecasts for a 4.1 million-barrel build. West Texas Intermediate (WTI) crude futures fell 46 cents to $65.01 a barrel.

"A lot of folks like to trade crude oil and other commodities to get away from the correlations you have in the stock market", said Kilduff, a CNBC contributor.

As sanctions take effect, buyers for Iran's crude will dry up. "Meanwhile, the recent build in inventories was likely due to outsized PADD2 maintenance in the US", Malek writes, in a note to clients Thursday. "The second one is global economic growth momentum slowing down", IEA chief Fatih Birol told an energy conference in Singapore.

A Wednesday Reuters survey of OPEC production showed the group made up for declines in Iranian shipments in October by boosting production to its highest level since 2016.

USA crude futures broke through the $65 level that had held in place for the last several months, raising the possibility of further selling.

There are also signs of a slowdown in global trade, with container and bulk freight rates dropping after rising for most of 2018, according to reports.

Now, with USA sanctions prohibiting the purchase of Iranian oil by non-exempt countries and organisations set to come into effect on November 04, and with a series of headwinds set to confront the global economy in 2019, the outlook for prices is ambiguous at best.

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