Crude oil futures slumped in the European morning session Thursday on a US inventory build and a culmination of bearish factors including slower emerging market growth, a weak dollar, the escalating US-China trade duel, US mid-term elections and the promise of increased production from the OPEC kingpin Saudi Arabia.
At 1030 GMT, January ICE Brent crude futures were down 75 cents from Wednesday's settle at $74.29/b, while the NYMEX December light sweet crude contract was down 54 cents at $64.77/b. The move to below $75/b for Brent was pinned on the contract rollover from November to December.
Pressure mounted as data released Wednesday by the Energy Information Administration showed US commercial crude stocks rose 3.2 million barrels in the week ended October 26, marking the sixth consecutive week-on-week rise, to 426 million barrels.
Despite the downward spiral in crude prices over the last month, analysts still believe the upside can prevail to the end of 2018 on the loss of Iranian barrels from the market, once US sanctions are reimposed this Sunday.
"We still expect, however, that Iran exports will fall further in the face of low OPEC spare capacity and that oil demand growth will prove resilient," analysts at Goldman Sachs said in a note Thursday. The investment bank forecast year-end Brent at $80/b.
However, the supply side is the one to watch, analysts at Commerzbank said in a note Thursday. Increased production from OPEC members in October to the highest levels since 2016, led by Saudi Arabia, the UAE and Libya mean the loss of Iranian and Venezuelan barrels could go unnoticed, the analysts said. This due to the lack of clarity on the exact loss of Iran from the global mix.
According to S&P Global Platts Analytics, Iran's exports will plunge to 1.1 million b/d in October, and 1.7 million b/d of Iranian crude and condensate exports will likely leave the market by November from April levels.
There are five factors that could bring about a swing in the current downward trend, analysts at PVM said in a note Thursday: "a) The stock markets as stronger equities will support oil again, b) Saudi rhetoric on future output, c) further loss of Iranian barrels in November, d) the strengthening of US gasoline/RBOB prices and e) the reappearance of backwardation in the front-end structure of the two main crude oil futures contracts."
