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Oil prices drop as 'trifecta of trouble' may cause glut

Reuters  |  NEW YORK 

By Jessica Resnick-Ault

(Reuters) - prices fell nearly 2 percent on Thursday as investors focused on swelling global crude supply, which is increasing more quickly than many had expected.

The market focused on record U.S. crude production and signals from Iraq, and 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 imports.

"There's a trifecta of trouble created by U.S. stockpile builds, OPEC overproduction and the watering down of sanctions," said Bob Yawger, at in

Brent crude futures , the global benchmark, fell $1.42, or 1.97 percent, to settle at $70.65 a barrel, the lowest since mid-August. U.S. crude futures fell $1.00, or 1.6 percent, to $60.67 a barrel, the lowest since March 14.

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.

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 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 as the world's largest producer. The move higher in production was a large jump, "not just a tick," Yawger said.

The 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.

Some market watchers believe the and allies including may take steps to reduce supply.

"OPEC and may use (production) cuts to support $70 per barrel," said Ole Hansen, at

Saudi Arabia's top government-funded think-tank is studying the possible effects on of a breakup of OPEC, 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 in the near term, the Journal reported.

(Additional reporting by in London and Henning Gloystein in Singapore; editing by and Chizu Nomiyama)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Fri, November 09 2018. 03:05 IST