Brent Sheds Over 2% as Oil Market Faces Oversupply
By Adedapo Adesanya
Brent crude dropped to $63 per barrel on Wednesday, extending losses as the International Energy Agency (IEA) revealed that the market will have an oversupply by 1 million barrels per day (bpd) in the first half of this year.
This led to a bearish performance for the Brent crude, which had dropped over $5 in the last week, as it dropped 2.14 percent equivalent to $1.38 to trade at $63.21 per barrel.
Also, the US West Texas Intermediate (WTI) crude further moved down below $57 as it shed 1.27 percent or 72 cents to trade at $56.02 per barrel. This performance was the lowest settlement for a front-month contract since December 3, 2019.
Speaking on the sidelines of the World Economic Forum (WEF) annual meeting in Davos, Switzerland, the Executive Director of the IEA, Mr Fatih Birol said the market is expecting a surplus due to recent developments.
“An abundance of energy supply in terms of oil and gas. It’s the reason that recent incidents we have seen — with the Iranian general, Qassem Soleimani, killed, Libya unrest — didn’t boost international oil prices,” he said.
The agency said this will be due to increase in US shale output, which he said will continue to influence other energy producers, including members of the Organization of the Petroleum Exporting Countries (OPEC) who had in December extended the cut to oil production by 1.7 million barrels per day as forecast show a monthly rise in US shale oil production of 22,000 barrels a day to 9.2 million barrels a day in February.
Meanwhile, China’s coronavirus is expected to further affect oil prices as the number of new cases has risen sharply in China, with 440 confirmed cases and if this leads to travel restrictions, it could affect demand for crude, directly telling on prices. Market analysts believe that if the virus develops dramatically and hit travel and growth, demand for oil could fall by 260,000 per day.
On the Libyan front, the National Oil Corporation (NOC) declared force majeure on the loading of oil from two major oilfields after the latest development in a long-running military conflict as this could help cut losses and support the commodity.
Unless oil facilities return to operation quickly, Libya’s crude output will be reduced to about 72,000 bpd from about 1.2 million barrels per day.
Industry data from the American Petroleum Institute (API) and the Energy Information Administration (EIA) are expected on Thursday with forecast report a rise of 500,000 barrels in US crude supplies for the week ended January 17, and this is not a good outlook as rise in inventories usually affect prices.