SINGAPORE: Oil markets on Friday remained weak as rising supply and concerns of an economic slowdown pressured prices, with US crude now down by 20 per cent since early October. US West Texas Intermediate (WTI) crude oil futures were at $61.63 per barrel at 0125 GMT, down 4 cents from their last settlement. Front-month Brent crude oil futures were at $70.79 a barrel, 14 cents above their last close
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However, both Brent and WTI have declined by around 20 per cent from four-year highs in early October.
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“Oil prices continue to decline and are now officially in a bear market, having declined 20 per cent from their (October) peak,” said William OLoughlin, investment analyst at Australias Rivkin Securities.
Reuters technical commodity analyst Wang Tao said on Friday that “Brent oil may slide further into a range of $68.59-$69.69 per barrel.”
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Analysts said the main downward price pressure came from rising supply, despite the US sanctions against Iran that were imposed this week, as well as concerns over an economic slowdown.
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“As OPEC exports continue to rise, inventories continue to build which is putting downward pressure on oil prices,” analysts at Bernstein Energy said.
The decline in prices over the past weeks follows a rally between August and October when crude was pushed up ahead of the re-introduction of sanctions against Irans oil exports on November 5.
“It will be a difficult period but Iran’s economy will withstand it for various reasons,” a second diplomat told Reuters, “including (the fact of) Russia being under (US and EU) sanctions, Saudi Arabia having its own financial and political issues, and (trade war) between China and the United States.”
These sanctions, however, will unlikely cut as much oil out of the market as initially expected as Washington has granted exemptions to Irans biggest buyers which will allow them to continue buying limited amounts of crude for at least another six months.
“Tehran is still likely to see a substantial share of its foreign exchange earnings maintained,” Andrine Skjelland told Reuters. “This will enable Tehran to continue subsidizing imports of selected basic goods, keeping the costs of these down and thus limiting inflation to some extent.”
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“Sanctions on Iran are so far proving to be less severe than first thought … because the US has now issued waivers to a raft of countries,” OLoughlin said.
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Bernstein Energy expects “Iranian exports will average 1.4-1.5 million barrels per day (bpd)” during the exemption period,” down from a peak of almost 3 million bpd in mid-2018.
“If Iranian tankers make calls to your ports or transit through your waterways, this comes at great risk,” Brian Hook, the State Departments special representative on Iran policy told journalists.
After global insurers withdrew coverage from Iranian vessels, the Islamic Republic will have to turn to domestic insurance corporations, which in turn won’t be able to meet the expense in case of maritime accidents that could run into billions of dollars, according to the top official.
Futures tumbled 1.6 per cent Thursday, extending a decline from the October high to more than 20 per cent, meeting the common definition of a bear market. A faster-than-expected inventory buildup dashed speculators hopes that prices could reach US$100. U.S. crude production has accelerated to new records, OPEC output is at the highest in years and waivers will allow some Iranian crude to flow to the market despite U.S. sanctions.
Special Rep. Hook: We want to alert nations of the risk of doing business with #Irans shipping sector. If Iranian tankers make calls to your ports or transit through your waterways, this comes at great risk…Protect your port, protect your business, and promote maritime safety. pic.twitter.com/eseAnu9DAd
“Oil spills and accidents involving tankers are extremely costly. From the Suez Canal to the Strait of Malacca — and all chokepoints in between — Iranian tankers are now a floating liability,” Hook said.
Sentiment has shifted, said Bart Melek, head of global commodity strategy at TD Securities in Toronto. OPEC has put on more crude than we thought and second of all, these waivers are becoming an impediment to price support.
“Countries, ports, and canal operators, and private firms should know they will be likely responsible for the cost of an accident involving a self-insured Iranian tanker,” he added.
The top official recalled a fatal accident with an Iranian-owned oil tanker Sanchi in the East China Sea in January, which resulted in 32 deaths, a massive oil spill and loss of the vessel. At the same time, Hook expressed hope that there will be no accidents.
The envoy also accused the Islamic Republic of trying to evade US sanctions by turning off their satellite transponders attached to vessels to prevent collisions.
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“This tactic is a maritime security threat. These transponders are designed to maximize visibility at sea and turning them off only increases risk of accidents and injuries,” Hook said. “Self-insured Iranian tankers engaging in unsafe behavior, with many tons of crude oil on board, are courting environmental and financial disaster.”
In May, US President Donald Trump withdrew from the Joint Plan of Action (JPOA), an international nuclear deal clinched between Tehran and a broad alliance of world powers. Shortly after that the White House announced they would re-impose unilateral sanctions against the Islamic Republic.
US oil enters bear market
The first round of penalties, which included cars, carpets, metals trading and access to the US dollar, entered force in August. The second batch came into effect on November 6, hitting oil and shipping sectors. Washington also threatened secondary sanctions on nations and corporations that continue to do business with Tehran.
Taking out $61.20 then turning higher for the day on a move over yesterday’s close at $61.67 will put the market in a position to form a potentially bullish closing price reversal bottom.