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Crude hits two-month low as Dated Brent closes

Three organisations published reports as December Brent crude contract was poised to close two-month low in November

With brimming inventories and the US central bank expected to raise rates in December, prices continue to look vulnerable in the short-term, at $43.88 a barrel (/b) (Brent) and $40.70/b (WTI).

The International Energy Agency (IEA), Opec and theUS Energy Information Administration all issued their last reports before Opec members meet in early December to discuss the level of production on the eve of Iran’s possible return as a seller to the market. A common theme across the reports was the growing stock-build, the extent of which surprised analysts in the US.

According to the IEA, “stockpiles of oil at a record 3bn barrels are providing world markets with a degree of comfort. This massive cushion has inflated even as the global oil market adjusts to $50/b.” This surplus, which started in the US, has now spread across other OECD member states.

Demand growth has risen to a five-year high, thanks in part to India, the agency says. But on the supply side, Russian output, for example, has hit a post-Soviet record and is likely to remain robust in 2016 as well. “The net result is brimming crude oil stocks that offer an unprecedented buffer against geopolitical shocks or unexpected supply disruptions,” says the IEA.

Opec’s spare production buffer is stretched thin as Saudi Arabia - which holds the lion’s share of excess capacity – and its Gulf neighbours pump at near record rates.

Length in the futures market is shrinking, Opec said, indicating more falls in the price are on the way. The producer-led cartel sees a growth in world oil demand of 1.5m barrels a day (b/d) to an average 92.86m b/d this year; and of 1.25m b/d growth next year, to 94.14m b/d.

 

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