Oil prices tested new low levels at the start of trading this week in the absence of any supportive news for the market.
In the first trading in Asia since last week’s latest sell-off, world benchmark North Sea Brent crude oil futures traded as low as US$36.17, a price not seen since 2004. Oman futures on Dubai Mercantile Exchange were down 77 cents at $31.24 a barrel just after midday.
Though the oil market oversupply has persisted for the past year despite a rapid slowdown in output growth from producers outside of Opec, some analysts see a ray of hope if major suppliers, including Saudi Arabia, can cut back due to scheduled oilfield maintenance.
“Non-Opec supply annual growth has swung from 2.2 million barrels per day (bpd) at the start of the year to 400,000 bpd in November,” Amrita Sen, analyst at Energy Aspects in Singapore notes. “But the crux of the current oversupply is Opec, with output still running higher by 1.5m bpd annually.”
However, she adds, “with large planned upstream works in UAE, Qatar and Saudi Arabia in the first quarter of 2016, Opec output could fall back to 31m bpd, helping to offset weakness in crude demand.”
But the latest news hasn’t been supportive. Saudi Arabia produced 10.28m bpd in October, up from 10.23m bpd in September, while its exports rose to 7.364m bpd from 7.111m bpd, the highest since mid-year, according to figures released last week by the Joint Organisations Data Initiative, a multi-government group which is considered to be a relatively independent and accurate source.
The strength of the dollar after last week’s first post-financial-crisis interest rate hike by the US Federal Reserve also hasn’t helped as oil, like most commodities, is priced in US dollars.
In addition, the lifting last week of the restrictions on US crude oil exports that have remained in place for more than 40 years has generally been taken as a bearish development, though its actual impact on international supply is not expected to be significant.
The US still imports a large proportion of its oil needs, as Jay Hauck, head of The Crude Coalition, which lobbied for a group of refiners and consumers against the move, points out.
“The reality is that the US still imports 7 million barrels of oil per day to meet domestic demand, so for every barrel that is exported a barrel will have to be imported, potentially from an unstable source,” says Mr Hauck. “No other country in the world exports oil while still importing to meet domestic needs.”
Other bearish news from the US came in the form of the latest rig count report from Baker Hughes at the end of the week, which showed rigs in use rising for the first time in four weeks.
Oil production in the US has been unpredictable this year, having peaked about 9.6m bpd in the spring as low oil prices halted the sharp rate of increase that had seen output nearly double since 2010.
Production stabilised around 9.3m bpd and then drifted higher during the summer but the US government’s Energy Information Agency in its latest forecasts said it expects US output to fall next year to 8.8m bpd and remain under pressure until oil prices recover.
Whatever the medium-term picture, there is widespread agreement that the supply-demand fundamentals remain bleak near term. Even the weather in the northern hemisphere isn’t helping, with unseasonable warmth meaning that demand for “middle distillates” – which includes heating oil – is below trend.
“Ultimately, [refinery] run cuts will be needed to balance distillates, which will weigh back on crude,” says Ms Sen.
In the meantime, the inventories of crude and refined oil products in storage continues to rise.
Follow The National’s Business section on Twitter