Mubasher: Oil prices fell on Friday as rising output by the world’s three largest producers outweighed worries over supply raised by US sanctions against Iran’s crude shipments which would take effect next week.

By 7:50 am GMT, US Nymex crude futures fell 0.36% to $63.46 per barrel (pb), while global benchmark Brent futures went down 0.19% to $72.75 pb.

“More troubling [...] is the shift in structure towards contango,” US investment bank Jefferies warned, referring to oversupply which means prices for future delivery are higher than for immediate dispatch.

This makes it attractive for traders to stockpile crude for later sale, despite “spreads are still insufficient to encourage physical storage,” Jefferies told Thomson Reuters.

As far as physical market is concerned, Saudi Arabia is set to reduce crude prices, with higher supply and a glut in refined products, weighing refinery profits. Saudi Arabia pumped 10.65 million barrels per day (bpd) in October.

The Organization of the Petroleum Exporting Countries (OPEC) ramped up crude output by 39,000 bpd to 33.31 million bpd in October, the highest level since December 2016, according to a survey by Reuters this week.

Moreover, the US crude production has established itself above 11 million bpd.

Russian production also rose to a record high of 11.41 million bpd in October, compared with 11.36 million bpd in September.

The combined production from Saudi Arabia, the US and Russia is at a record of 33.41 million bpd, implying that the world’s major three oil producers are meeting over a third of the world’s nearly 100 million bpd of consumption.

"This surge has driven the market into oversupply,"Jefferies said.

However, concerns mounted as US sanctions against Iranian oil exports were due to take effect from the next week.

Iran’s largest oil importers are seeking to receive sanction exemptions.

“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 Height Securities analyst Clayton Allen told Reuters, adding that “Trump will agree to China importing some volumes, similar to the treatment that India and South Korea receive.”

That said, any potential sanction waivers would probably only be temporary, analysts said.

The US may use waivers to slow-walk implementation, but these will not apply indefinitely," Allen said.