Oil prices fell on Friday as surging output by the world’s three largest producers, United States, Russia and Saudi Arabia, outweighed supply concerns from the start of U.S. sanctions next week against Iran’s petroleum exports.
Front-month Brent crude futures were at $72.60 per barrel at 0441 GMT on Friday, down 29 cents, or 0.4 percent, from their last close.
U.S. West Texas Intermediate (WTI) crude futures were down 24 cents, or 0.4 percent, at $63.45 a barrel.
Brent has fallen by over 12 percent since the beginning of October, while WTI has lost more than 13 percent in value. “More troubling… is the shift in structure towards contango,” U.S. investment bank Jefferies said on Friday. Contango implies oversupply as it means prices for future delivery are higher than for immediate dispatch.
This makes it attractive for traders to store oil for later sale, although Jefferies said “spreads are still insufficient to encourage physical storage.”
Prices for April 2019 delivery are around 20 cents above January.
Downward pressure on oil is also visible in the physical market, where Saudi Arabia is expected to cut December crude prices amid higher supply and a glut in refined products that has eroded refinery profits.
The Organization of the Petroleum Exporting Countries (OPEC) boosted oil production in October to 33.31 million barrels per day (bpd), a Reuters survey found this week, up 390,000 bpd from September and the highest by OPEC since December 2016.
In the United States, crude production has established itself well over 11 million bpd, and the U.S. is now running neck and neck with Russia for the title of top producer.
Russian production has risen to record high of 11.41 million bpd in October, up from 11.36 million bpd in September.
With Saudi Arabia pumping 10.65 million bpd in October, combined output from the top-three oil producers is at a record 33.41 million bpd, meaning that Russia, the United States and Saudi Arabia meet more than a third of the world’s almost 100 million bpd of consumption.
“This surge has driven the market into oversupply,” Jefferies said.
Despite surging output, concerns lingered ahead of the start of U.S. sanctions against Iran’s petroleum exports from next week.
Iran’s biggest oil customers, all in Asia, are seeking sanction waivers.
“Potential waivers appear targeted at India and South Korea, and they require some reductions over current import volumes while still allowing oil to flow,” said Clayton Allen of Height Securities.
“We think Trump will agree to China importing some volumes, similar to the treatment that India and South Korea receive,” he said.
Japan is seeking a similar deal.
Despite these efforts, analysts said any potential Iranian oil sanction waivers would likely only be temporary.
“The U.S. may use waivers to slow-walk implementation, but these will not apply indefinitely,” he added.
Goldman Sachs said it expects Iran’s crude oil exports to fall to 1.15 million bpd by the end of the year, down from around 2.5 million bpd in mid-2018.
“We still expect that the global oil market will be in deficit in 4Q18,” the U.S. bank said.
By the end of 2019, however, Goldman expects Brent to fall to $65 a barrel, largely due to “the unleashing of Permian (U.S. shale) supply growth once new pipelines come online.”