Business Maverick

Business Maverick

Oil Falls Towards $40 With Supply Constraints Beginning to Ease

Tanker train cars sit parked near Sunray, Texas, U.S., on Saturday, Sept. 26, 2020. After all the trauma the U.S. oil industry has been through this year -- from production cuts to mass layoffs and a string of bankruptcies -- many producers say they’re still prioritizing output over reducing debt. Photographer: Angus Mordant/Bloomberg

Oil dropped for a second day as operations in the U.S. Gulf of Mexico started to resume following Hurricane Delta and Libya took a major step toward reopening its biggest field.

Futures in New York fell towards $40 a barrel after closing down 1.4% Friday as oil workers in Norway called off a strike. Crude explorers and tugboat operators got back to work on Saturday after Delta, which had seen about 92% of oil production and 62% of gas output shuttered. The hurricane and hopes for more U.S. fiscal stimulus contributed to a price jump of almost 10% last week.Libya’s National Oil Corp. lifted force majeure on the western deposit of the Sharara field and instructed its operator to resume production, according to a statement on Sunday. Sharara’s output will reach its daily capacity of almost 300,000 barrels in 10 days, a person with knowledge of the situation said.
Oil Tapering

The resumption of supply from the North African country is an added headache for the OPEC+ alliance as it considers whether to proceed with a plan to restore more output in January. With coronavirus cases accelerating in many countries, the group faces a tough decision at its next policy meeting on Nov. 30-Dec. 1.

“We have supply coming back to the market, while there is still plenty of concern over demand, with the flaring up in Covid-19 cases in parts of Europe,” said Warren Patterson, head of commodities strategy at ING Bank NV in Singapore. With Libya coming back, the market is close to balance, but it will depend on demand assumptions, he said.

Prices
  • West Texas Intermediate for November delivery fell 0.8% to $40.28 a barrel on the New York Mercantile Exchange at 10:14 a.m. in Singapore
    • The contract rose 9.6% last week
  • Brent for December settlement declined 0.8% to $42.49 a barrel on the ICE Futures Europe exchange after dropping 1.1% on Friday.

Brent’s six-month timespread was $2.08 a barrel in contango — where prompt prices are cheaper than later-dated ones — compared with $1.95 on Friday. The change in the market structure indicates concern about over-supply has increased slightly.

Iraq expects crude prices to remain at around $41 to $42 a barrel this year before rising to $45 in the first quarter of 2021, the state-run Al-Sabah newspaper reported, citing an interview with Oil Minister Ihsan Abdul Jabbar. The minister reiterated that Iraq, OPEC’s second-biggest oil producer, would continue to comply with the OPEC+ pact to curb output.

Drilling activity in the U.S., the world’s largest producer, is starting to pick up despite signs demand might not recover to pre-virus levels until 2022 or 2023. Active rigs targeting crude oil rose by 4 to 193 last week, according to Baker Hughes, an increase of 14 in the last three weeks.

Other oil-market news:
  • Saudi Aramco gave full contractual crude oil supply to at least five refiners in Asia for November sales, according to refinery officials with knowledge of their procurement operations.
  • For decades, diesel has underpinned India’s economic growth and the fortunes of its refiners, but the pandemic has caused the nation’s most consumed fuel to lose some of its luster.
  • Crude futures fell 0.8% to 262.4 yuan a barrel on the Shanghai International Energy Exchange after jumping 3.9% on Friday as trading resumed after public holidays.
Gallery

Comments - Please in order to comment.

Please peer review 3 community comments before your comment can be posted

X

This article is free to read.

Sign up for free or sign in to continue reading.

Unlike our competitors, we don’t force you to pay to read the news but we do need your email address to make your experience better.


Nearly there! Create a password to finish signing up with us:

Please enter your password or get a sign in link if you’ve forgotten

Open Sesame! Thanks for signing up.

We would like our readers to start paying for Daily Maverick...

…but we are not going to force you to. Over 10 million users come to us each month for the news. We have not put it behind a paywall because the truth should not be a luxury.

Instead we ask our readers who can afford to contribute, even a small amount each month, to do so.

If you appreciate it and want to see us keep going then please consider contributing whatever you can.

Support Daily Maverick→
Payment options

Become a Maverick Insider

This could have been a paywall

On another site this would have been a paywall. Maverick Insider keeps our content free for all.

Become an Insider
Elections24 Newsletter Banner

On May 29 2024, South Africans will make their mark in another way.

Get your exclusive, in-depth Election 2024 newsletter curated by Ferial Haffajee delivered straight to your inbox.