Oil prices continued to slide on Friday, adding to sharp declines from earlier this week as evidence mounted that a fuel supply overhang continued despite an ongoing effort led by OPEC to tighten the market by holding back production. Brent crude futures were trading at $47.67 per barrel at 0039 GMT, down 19 cents, or 0.4 percent, from their last close. That puts Brent 12 percent below its opening level on May 25, when an OPEC-led policy to cut oil output was extended to cover the first quarter of 2018. U.S. West Texas Intermediate (WTI) crude futures were at $45.44 per barrel, down 20 cents, or 0.44 percent, from their previous close. They are down over 11 percent from May 25.
“(With very few) bullish catalysts around at the moment, the path of less resistance remains lower,” ANZ bank said. Traders said the price slump was a result of ongoing oversupply despite the pledge led by the Organization of the Petroleum Exporting Countries (OPEC) to cut almost 1.8 million barrels per day (bpd) of production until the first quarter of 2018. In the United States, official Energy Information Administration (EIA) data showed a surprise build in commercial crude oil stocks to 513.2 million barrels this week <C-STK-T-EIA>.
The bloated inventories are in part a result of a relentless rise in U.S. oil production <C-OUT-T-EIA>, which has risen by 10 percent since mid-2016 to over 9.3 million bpd and estimated by the EIA to hit a record 10 million bpd next year, challenging output of top exporter Saudi Arabia. But markets elsewhere are also oversupplied, with evidence emerging that traders are putting excess crude into floating storage, a key indicator for a glut.
The Brent forward price curve now shows a clear contango shape, in which prices for January next year are $1.5 per barrel above those for immediate delivery, making it profitable to put crude into tankers and wait for a later sale. Shipping data in Thomson Reuters Eikon shows at least 25 supertankers are currently sitting in the Strait of Malacca and the Singapore Strait, holding unsold fuel.
That’s only slightly less than in early May and about the same amount from April, indicating that even in Asia with its strong demand growth, traders are struggling to clear out bloated inventories. And more production is coming. Libya’s 270,000 bpd Sharara oil field has reopened after a workers’ protest and should return to normal production within three days, the National Oil Corporation said in a statement early on Friday.