By Jessica Resnick-Ault
The market focused on record U.S. crude production and signals from Iraq, Abu Dhabi and Indonesia that output will grow more quickly than expected in 2019. Fears of the potential supply glut dampened a rally early in the session driven by Chinese data that showed record oil imports.
Brent crude futures
In post-settlement trade, both contracts extended losses.
China's crude imports rose to 9.61 million barrels per day (bpd) in October, up 32 percent from a year earlier, customs data showed.
China will still be allowed to import some Iranian crude under a waiver to U.S. sanctions that will enable it to purchase 360,000 bpd for 180 days, two sources familiar with the matter told Reuters on Tuesday.
U.S. crude output reached a new record high of 11.6 million bpd in the latest week and the country has now overtaken Russia as the world's largest oil producer. The move higher in production was a large jump, "not just a tick," Yawger said.
The U.S. Energy Information Administration said this week it expects output to top 12 million bpd by the middle of 2019, thanks to shale oil. [EIA/M]
Even with U.S. sanctions on Iranian oil in place, investors believe there is more than enough supply to meet demand. Waivers granted to the sanctions intensify the market's perception that sanctions may not limit crude supply as much as initially expected.
This view is reflected in price charts showing the front-month January Brent futures contract trading at a discount to February. This price structure, known as contango, materializes when market players believe there is a supply glut and decide to store oil rather than sell it. This creates an even larger pool of unsold crude.
Saudi Arabia's top government-funded think-tank is studying the possible effects on oil markets of a breakup of OPEC, the Wall Street Journal reported on Thursday, citing people familiar with the matter. The research project does not reflect an active debate inside the government over whether to leave the Organisation of the Petroleum Exporting Countries in the near term, the Journal reported.
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