An employee works on at the Centenario deep-water oil platform in the Gulf of Mexico off the coast of Veracruz, Mexico. Picture: REUTERS
An employee works on at the Centenario deep-water oil platform in the Gulf of Mexico off the coast of Veracruz, Mexico. Picture: REUTERS

London  — Oil rose on Thursday, recovering modestly from this week’s three-week lows, after record Chinese crude imports soothed some concern that demand in the world’s largest commodity buyer may be flagging just as global supply is rising.

Record US crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019 pushed the price of Brent oil to its lowest since mid-August earlier in the week. Brent crude futures rose 71c to $72.78 a barrel by 10.07am GMT, while US crude futures gained 55c to $62.22.

“Crude oil prices are being supported by a jump in October Chinese crude oil imports ... thirst for the black stuff has increased among domestic teapot refiners,” PVM Oil Associates strategist Tamas Varga said.

China’s crude imports rose 32% in October compared with a year earlier to 9.61-million barrels per day (bpd), customs data showed on Thursday. “Crude oil imports rose ... as uncertainty around tariffs on US imports and sanctions on Iran eased,” ANZ bank said.

Tempering some of the enthusiasm was data showing US output reached a new record high of 11.6-million bpd, and a forecast that it would grow far more quickly next year than many previously expected.

The US has now surpassed Russia to become the world’s largest oil producer and the Energy Information Administration (EIA) said this week it expects output to top 12-million bpd by the middle of 2019, thanks to shale oil.

Production has not just risen in the US, but also in many other countries, including Russia, Saudi Arabia, Iraq and Brazil, and threatens to overtake demand next year.

Even with US sanctions on Iranian oil in place, the perception among investors is that there is more than enough supply to meet demand, as reflected by the front-month January Brent futures contract trading at a discount to February.

This price structure, known as contango, materialises when traders and investors believe supply to be greater than demand and therefore have more incentive to store oil, rather than sell it, thereby creating an even larger pool of unsold crude.

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

Reuters

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