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Crude Prices Nose-Dive as Supply Glut Remains Stubborn

Nov, 04th 16:46

Oil prices plummeted on Friday, on course for their sixth straight day of falls, as they have been dragged lower by concerns over a global glut that may last longer than expected. Coupled with U.S. crude inventories that swung back to an expansion, timid demand and doubts over the ability of producers to finalize the output cut deal are weighing on crude prices.

According to the report from the Energy Information Administration on Wednesday, crude oil stockpiles soared more than 14 million barrels in the U.S last week, recording the largest build ever. The unexpected increase in supplies came in following two weeks of declines. Also in the U.S., the Colonial Pipeline carrying gasoline, which was disrupted this week by an explosion, is expected to restart Line 1 this weekend.

Oil extended losses after Reuters reported Saudis and Iranian clashing again at a meeting of OPEC experts last week. As stated by four OPEC sources that were present at the meeting, Saudi Arabia threatened to raise oil output steeply to 11 million barrels per day and even 12 million bpd, if Iran refuses to join with other oil producers to curb supply.

However, the rumor was quickly squashed by OPEC Secretary General Mohammed Barkindo who denied reports of tensions resurfacing between Saudi Arabia and Iran, and stated on Friday that “Their contributions as usual were constructive”. Nevertheless, investors remained doubtful that the OPEC and non-OPEC producer Russia can agree on a meaningful output cut this month.

Adding to crude oil woes, British bank Barclays said demand for the commodity was timid. The bank claimed that crude oil demand growth in three months to September was less than a third that of the year-ago quarter. Barclays estimated last quarter’s growth below 1 million bpd and forecast the consumption rise for the last quarter is not much higher.

wti

Fig: OIL D1 technical chart

Crude oil has been on a steep decline, which helped the price action break below the 23.6% Fibonacci level at 46.00. The prices pared most of their gains in the period from September 28 to October 19 – the rally that sent crude prices to over one-year highs. Crude prices are heading downwards to the 38.2% level but before that, they will have to face a strong support at 43.00.

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