Oil prices down on oversupply as US crude inventories rise
Brent has given up all gains made after an Iranian general was killed and even with Opec+ supply cuts, US crude inventories ensure ample supply
London — Oil slipped towards $65 a barrel on Friday as the threat of war in the Middle East receded and investors focused on rising US inventories and other signs of ample supply.
Crude is now below where it was before a US drone strike killed top Iranian general Qassem Soleimani on January 3. Iran responded with a missile attack on Iraqi airbases hosting US forces this week that left no casualties.
“Immediate escalation has been avoided,” said Olivier Jakob, oil analyst at PetroMatrix. “There has been some de-escalation, but the return of risk is still there.”
Brent crude, the global benchmark, was down 20c at $65.17 by 9.28am GMT, and was heading for its first weekly decline in six weeks, down about 5%. US West Texas Intermediate (WTI) crude was 25c lower at $59.31.
“Tensions between the US and Iran appear to have eased almost as quickly as they escalated,” said Craig Erlam, an analyst at Oanda, a brokerage. “Brent is trading back around $65 and is looking pretty stable at this point. Barring any further escalation in the Middle East, we could see oil prices stabilise around these levels in the near term.”
With Middle East tensions easing for now, investors are focusing on areas away from the conflict.
Crude inventories in the US rose last week by 1.2-million barrels, the US Energy Information Administration (EIA) said on Wednesday. That compared with analysts’ expectations in a Reuters poll for a 3.6-million barrel drop.
“There’s too much supply out there,” a Japan-based based oil executive told Reuters.
In a bid to tackle any build-up of excess supply, oil cartel Opec plus allies, including Russia (Opec+), embarked on a further cut in production as of January 1 this year.
Industry surveys, including from Reuters, showed that Opec output declined in December ahead of the new pact. Still, production remains higher than the forecast demand for early 2020, according to some analysts.
Said Carsten Fritsch, analyst at Commerzbank, “The oversupply on the oil market is sizeable.”