Oil’s in a Bear Market Again

Randal Sanchez
November 9, 2018

The US on November 5 re-imposed sanctions on import of crude oil from Iran but temporarily allowed India, China, South Korea, Japan, Italy, Greece, Taiwan and Turkey to continue the purchase from the Gulf nation without any penalty.

Brent fell 95 cents to a low of $69.70 before recovering slightly to trade around $69.85 by 1030 GMT, down 4 percent for the week and more than 15 percent this quarter.

Brent crude LCOc1 had dropped from a four-year high in October above $86 a barrel to $71.18 dollars on Tuesday, its lowest since August 16. That would mark an abrupt end to six months of supply increases, reflecting the prospect that U.S. sanctions on Iran won't be deep enough to prevent another surge of American shale oil creating a new surplus. Trump repeatedly has asked oil producers to pump more crude to lower prices. "After the USA mid-term elections, we would also expect Saudi Arabia and GCC allies to reduce supply slowly to allow the physical markets to absorb the excess crude first (other than Iranian barrels)", said the report.

Brent crude for January delivery was fetching around $72 per barrel in late London trading on Wednesday, compared with $75.79 around the same time in the previous week.

The State Department reminded the global shipping and insurance industries Wednesday that as part of the Trump administration's "maximum pressure campaign" to get Iran to change its behavior, insuring Iranian tankers will now incur penalties under USA sanctions reinstated this week.

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Still, a return to oil production cuts by OPEC and its allies next year can not be ruled out, two OPEC sources said this week.

Washington has said it wants to force Iranian oil exports down to zero, but Bernstein Energy now expects "Iranian exports will average 1.4 million to 1.5 million bpd" during the exemption period, about half the volume in mid-2018. Market participants hope that the Ministers of oil-producing countries will discuss the possibility of reducing production in 2019. On Wednesday, oil slipped after US crude output hit another record and domestic inventories rose more than expected.

Meanwhile, the world's top three producers, the United States, Russia and Saudi Arabia are also pumping at or near records.

Oil's slump has been exacerbated by a US decision to allow eight countries to continue importing from Iran even after it hits the OPEC member with sanctions.

"I am not at the liberty to give you details about the quantum of crude oil that we will continue to import", Kumar added.

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