Picture: REUTERS
Picture: REUTERS

Singapore —Oil prices dipped on Thursday as record US crude output heightened concerns of a return of global oversupply, stoking talk from within Opec that production curbs may become necessary once again to prevent a glut.

Front-month Brent crude oil futures were at $71.93 a barrel at 3.01am GMT, down 14c from their last close.

US West Texas Intermediate (WTI) crude futures were at $61.68 a barrel, virtually flat from their last settlement.

Benjamin Lu of brokerage Phillip Futures in Singapore said that overall, “oil prices continue to demonstrate bearish influences amidst market concerns of rising global inventories [and as] increasing output levels threaten to upset supply fundamentals in the fourth quarter of 2018”.

A group of producers around the Middle East-dominated Opec as well as Russia decided last June to relax output curbs in place since 2017, after pressure from US President Donald Trump to reduce oil prices and make up for supply losses from Iran.

But with Iran sanctions now in place and oil still in ample availability, Opec-led production cuts next year cannot be ruled out, two Opec sources said on Wednesday.

“Opec and Russia may use cuts to support $70 a barrel,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“The introduction of US sanctions earlier this week against Iran failed to lift the market given the announcement that eight countries, including three of the world's biggest importers, would receive waivers to carry on buying Iranian crude for up to six months,” Hansen said.

The only way is up?

At the heart of rising global output has been a relentless increase in US crude production, which hit a record 11.6-million barrels a day in the week ending November 2, according to Energy Information Administration (EIA) data released on Wednesday.

That is a threefold increase from the US low reached a decade ago, and a 22.2% rise just this year. It makes the US the world’s biggest producer of crude oil.

More US oil is likely to come. The EIA expects output to break through 12-million barrels a day by mid-2019, thanks largely to a surge in shale oil production.

Meanwhile, US crude inventories rose by 5.8-million barrels in the week ending November 2, to 431.79-million barrels, the EIA said.

Crude stocks moved back above their five-year average levels in October.

Production has not just risen in the US, but also in many other countries, including Russia, Saudi Arabia, Iraq and Brazil, stoking producer concerns of a return of oversupply that depressed oil prices between 2014 and 2017.

“Producers are concerned about the potential oversupply after the EIA reported that crude inventories rose by 5.8-million barrels,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.