Mubasher: Oil prices went down on Wednesday amidst indicators that global markets remained sufficiently supplied, Reuters reported.
This came despite a rally to the highest level seen so far this year as the US administration pushed for even tougher sanctions against oil-rich Iran.
By 7:25 am GMT, US Nymex crude futures dropped 0.68% to $65.85 per barrel (pb), while global benchmark Brent futures fell 0.51% to $74.13 pb.
Oil prices for spot delivery went bullish, hitting their 2019 peak earlier in the week after the US announced an end to the exemptions granted for sanctions against Iran, urging all nations to cut their imports from Tehran by 1 May or face sanctions.
After Washington re-instated sanctions against Iran in November 2018, it granted waivers to eight of its largest customers, mostly in Asia, under which they were allowed to import limited amounts of crude for another six months.
The surge in spot markets sent the Brent futures curve to swing into a sharp backwardation, a situation in which prices for later delivery are lower than prompt dispatch.
The shift to backwardation in the last four months indicated that “market’s underlying fundamentals have shifted away from a spot market that is well supplied to a market where demand is beginning to overtake supply,” Schork Report energy newsletter was quoted by Reuters.
With the likely sharp shortage of Iranian oil, market supplies are set tighten on the near term, according to Goldman Sachs and Barclays.
That said, markets remained well-supplied currently with ample spare capacity from the producers from the Organization of the Petroleum Exporting Countries (OPEC), Russia and the US, analysts told Reuters.
The International Energy Agency (IEA) believes that markets “adequately supplied” and “global spare production capacity remains at comfortable levels.”
The US grew to become the biggest source of new oil supply, as its output already climbed by more than 2 million barrels per day (bpd) since early last year, the news agency said.
“Total oil supplies from the US are expected to grow by 1.6 million bpd this year,” the IEA said.
In another indication of the US expanding oil market share, former OPEC member and oil exporter Indonesia order its first crude shipments from the US.
