Crude Gains as Oversupply Weighs on Energy Market
Crude oil prices regained grounds on Monday after slumping sharply in the previous session, with United States oil back above $30 per barrel as market players considered the impact of a probable freeze by main producers.
The steep plunge came after large exporters held talks on a potential agreement to cut global oversupply which has pulled down prices to their lowest levels in nearly 13 years this month. The world’s biggest oil producers, Russia and Saudi Arabia, have agreed to reduce production if others followed suit.
However, oil extended losses on Friday as market players worry the deal would not gain traction, with market analysts warning that Iran and Iraq, which is pumping production, after sanctions were elevated.
News commercial crude stockpiles in the United States, the world’s top oil consumer, proceeded to boost up increased pressure.
Internationally traded Brent crude on the Intercontinental Exchange — Futures Exchange in London for April delivery soared 48 cents or 1.45 percent, to trade at $33.49 per barrel. London-traded Brent futures slipped $1.27 or 3.7 percent, amid reluctance over the probability of a collective cut happening anytime soon.
On the other hand, Iran oil minister Bijan Zanganeh stated that he supported and gauge which would help stabilize global oil markets, he stopped short of committing to a freeze in Iranian production, emphasizing the question of whether the agreed parties will stay committed to the strategy plan.
Major oil producers Saudi Arabia and Russia agreed to keep oil production at January levels provided other crude exporters joined in but stopped short of agreeing trims in crude output.
On the New York Mercantile Exchange, United States oil advanced 59 cents or 1.86 percent, to trade at $32.34 per barrel. Last week, NYMEX futures dropped $1.18 or 3.58 percent.
Moreover, crude futures have dipped nearly 70 percent since 2014. Global crude production is rising faster than demand following a boom in United States shale oil and after the Organization of Petroleum Exporting Countries opted last year not to slash production in order to defend market share.
In the United States, record crude stocks of 504.1 million barrels were also dragging on markets, countering an offered production freeze at January levels by Russia and the Organization of Petroleum Exporting Countries.
OPEC and Russia were both ramping up oil close to record volumes last month, as Russia reach another post-Soviet high of 10.88 million barrels per day.
As stated by an energy analyst, “Locking in countries’ production near historic production highs does not change an oversupplied market. I am highly skeptical of Iran, now off sanctions, committing to exports at sanction era lows.”
Iran wants to suddenly surge its output to regain lost market share and plans to hike production by 700,000 barrels per day in the near future.
According to a market analyst, “Iran’s return to the global oil market will add supply to an oversaturated market, but the country faces challenges in ramping up its production. To raise production Iran needs to regain its customer base, attract investment to upgrade its oil fields and successfully navigate a range of political risks.”
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