With West Texas Intermediate on Tuesday settling 1.8 percent lower at around $70 per barrel and Brent settling near $73 per barrel, the most unlikely fear after months of analytical handwringing about depleted supplies resurfaced: that of a near-term supply glut.
Dennis Kissler, head of energy trading at BOK Financial Securities Inc., said, “The oil market is remaining under pressure from the expectations of heavier global supplies from both the Middle East and Asian fuel exports resurfacing.
“If you add in that U.S. driving season normally peaks in two weeks, it’s hard to find a reason to be a buyer in here.”
Due to flows returning through the Strait of Hormuz faster than expected, Morgan Stanley cut its price forecasts for a physical benchmark by a sixth for next quarter; it warned that Hormuz flows only needed to recover to about 65 percent of pre-U.S./Iran war levels for a glut to form.
Bloomberg also pointed to another sign of weakness, that of oil on Monday being offered in the North Sea at its biggest discount in years; the news agency also noted that the Dated Brent physical benchmark has plummeted.
Meanwhile, the now-familiar power play between the U.S. and Iran continued as the two countries maintained negotiations under its 60-day memorandum of understanding: Iranian deputy foreign minister Kazem Gharibabadi said Tehran would continue with plans to oversee traffic through the strait if Oman chose not to jointly manage the waterway.
Washington has repeatedly backed other Middle East countries by stating that Iran’s control over the strait must be relinquished if a peace deal is to be reached.
In other oil news on Tuesday, the American Petroleum Institute reported that crude oil inventories in the U.S. fell by 6 million barrels in the week ending June 26; and although commercial crude inventories excluding the SPR have shed 59.4 million barrels over the last eleven weeks, U.S. crude inventories are only down 8 million barrels so far this year thanks to SPR draws, according to API data.
Also on Tuesday, the U.S. Energy Information Administration disclosed that U.S. crude production climbed to a record 13.9 million barrels per day (bpd) in April, the highest monthly production rate ever recorded.
New Mexico established a new output record at 2.3 million bpd; Texas increased production to 5.8 million bpd, its highest level since November, and North Dakota also posted its strongest production since November at 1.1 million bpd.