The long losing streak in oil prices over the past two weeks was the result of U.S. policies and soaring American oil production, Ed Morse, head of commodities research at Citigroup, told Bloomberg in an interview.
Relentlessly rising American oil production, coupled with the U.S. granting waivers to eight Iranian oil customers-including Tehran's biggest clients China and India-added to the oversupply concerns on the market. On the demand side, the U.S.-China trade war has been hurting global economic and oil demand growth prospects, according to Morse.
All these factors combined, along with U.S. President Donald Trump's latest tweet aimed at OPEC-"Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!"-were the reasons behind the oil price plunge into a bear market.
"The oversupply in the market is a made-in-America phenomenon," Morse told Bloomberg. "It's the unexpected consequences of American policy and the unintended impact of technological changes that made this historically unprecedented arena for production growth blossom," Citigroup's head of commodities research said.
The EIA estimates that U.S. crude oil production was 11.6 million bpd in the week to November 2, the highest ever weekly production estimate.
Over the past months, production at the leaders of the OPEC/non-OPEC production cut deal-Saudi Arabia and Russia, respectively-has also increased. Russia, Saudi Arabia, and few Arab Gulf nations with spare capacity have been pumping more since June to offset in advance expected steep losses from Iran once the U.S. sanctions snapped back. Iran's oil exports did fall, but not as much as analysts and market participants were expecting.
OPEC and Russia's October production more than offset losses from Iran and Venezuela, while demand in some developing countries has been slowing, the International Energy Agency (IEA) said on Wednesday. Surging supply from the U.S. and OPEC production compensating for Iran and Venezuela point to an oversupply in the market next year, if we assume that OPEC will continue to compensate for its troubled members, the IEA noted.
By Tsvetana Paraskova for Oilprice.com
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Comments
Furthermore, the issuing of sanction waivers to eight countries who didn’t need them in the first place and who would have continued to buy Iranian crude waivers or no waivers is the clearest admission by the United States that their zero option is out of reach and that sanctions are doomed to fail. Moreover, the eight recipients of the waivers have neither increased or decreased their purchases of Iranian crude as a result of the waivers.
Another factor weighing on prices is that the global oil market has not re-balanced completely and that there is a small pocket of glut capable of taking care of outages in Venezuela and elsewhere. This means that Saudi Arabia’s and Russia’s decision to add 650,000 b/d six weeks ago to keep prices down was a grave mistake. It just added to the already existing glut.
If Ed Morse thinks that rising US oil production contributed to the recent decline in oil prices, then why does President Trump keep haranguing OPEC to raise production to keep prices down. It points to one thing: EIA’s claims are plain untruths.
And whilst the escalating trade war between the US and China has created uncertainty in the global economy, it didn’t in any way dampen China’s oil demand as Ed Morse claims. On the contrary China’s oil imports have been surging higher than anytime before and are projected to go much higher than 10 mbd and could even hit 11 mbd this year.
Because of its very importance to the global economy, oil is always subjected to various economic and geopolitical pressures virtually on daily basis thus creating a volatility of prices. That is why one shouldn’t be surprised to see oil prices shuttling between bull and bear markets all the time.
A few weeks ago oil hit $87 a barrel. Today it is $67. The day after the markets could change from bearish to bullish sending prices up to $80.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London