Brent crude prices hit their lowest in over 11 years on Monday, hounded by a relentless rise in global supply that looks set to outpace demand again next year. Oil production is running close to record highs and, with more barrels poised to enter the market from the likes of Iran, the United States and Libya, the price of crude is set for its largest monthly percentage decline in seven years. While consumers have enjoyed lower fuel prices, producers have cut spending and thousands of jobs and the world's richest exporters have been forced to revalue their currencies, sell off assets and even issue debt for the first time in years as they struggle to repair the holes in their finances.
Oil prices declined on Wednesday as a sense of gloom settled over the market, with no end in sight to the plentiful supplies of crude.
Oil prices had gyrated the previous day as Iran stuck a deal over its nuclear ambitions with the U.S. and other world powers. Prices fell, at first, but recovered as it became clearer that the Persian nation is unlikely to start exporting large volumes immediately. The market then rallied in U.S. hours after a surprisingly sharp drop in U.S. crude oil stocks.
Yet by Wednesday morning, the market had returned to the basic premise that the world is producing too much oil and isn’t consuming enough. On the supply side, members of the Organization of the Petroleum Exporting Countries are pumping more and more oil to snap up market share. On the demand side, global economic growth remains sluggish, at best, with China and Europe of particular concern.
On London’s ICE Futures exchange, Brent crude for delivery in September fell $0.55 to $58.13 a barrel. On the New York Mercantile Exchange, light, sweet crude futures for delivery in August traded at $52.59 a barrel, down $0.45.
The market may yet shrug off some of the despondency if data from the U.S. Energy Information Administration confirms that U.S. crude stocks fell sharply last week. On Tuesday, the American Petroleum Institute reported that crude supplies dropped 7.3 million barrels for the week ended July 10—a far larger drop than had been expected. The EIA will report its numbers at 1030 EST.
Meanwhile, analysts are pondering when Iranian oil will start to influence the market, and whether OPEC will take any action to curb production and shore up prices.
“The oil market is unlikely to see additional Iranian crude until [the first quarter of 2016] and in quantities likely well below the 1 million barrels a day touted by Iranian Energy Minister Zanganeh, more likely on the order of 200,000 to 300,000 b/d initially and rising to double that level by year-end,” said analysts at Citi.
“The deal is undoubtedly bearish for oil markets, but how bearish only time will tell. Today’s sluggish global economy doesn’t hold out much hope for oil demand playing a major role in reducing the growing overhang of inventories.”