Oil prices fall as market focus returns to global supply overhang

Oil futures rallied on Friday (26 August) as Saudi Oil Minister Khalid Al-Falih said a crude production freeze by major producers would be positive and indicate contentment within their ranks with the current market supply situation.

Brent crude futures were up 45 cents, or 0.9 per cent, at $49.50 a barrel by 10:15 a.m. EDT (1415 GMT), after settling down 1.8 per cent on Wednesday. U.S. light crude oil was down 5 cents at $46.72 a barrel, after dropping 2.8 per cent on Wednesday.

An Organization of the Petroleum Exporting Countries delegate told The Wall Street Journal that Tehran had sent a letter to OPEC members that it would attend the informal meeting next September in Algeria.

Oil prices had rallied last week and entered a bull market – a 20-percent rise from recent lows – after OPEC and Russian Federation announced plans to discuss the supply crisis, which has hammered the crude market for more than two years.

Meanwhile, in China net crude oil imports fell by just over 2% month-on-month in July, falling to 7.29 million barrels a day from 7.45 million b/D in June according to the final figures released by the country’s National Bureau of Statistics.

“I will participate in this meeting”, Iran’s Zanganeh was cited as saying by the oil ministry’s news service Shana.

But yesterday he insisted there could be no talk of Iran abandoning its ambitions to restore its market share after last year’s nuclear agreement with world powers led to the lifting of sanctions on its oil exports.

He said the “market is moving in the right direction” already.

Oil prices were uneven early Friday, following expressions by some producers that intervention wasn’t necessary, while others brushed off the influence of market forces alone.

Director for global affairs of the National Iranian Oil Company (NIOC) Mohsen Qamsari said Iran’s total exports hit 2.74 million bpd in June.

As well as this, Iraq already said it is now not producing at the level it could and is refusing to cap its crude oil output, raising concerns that OPEC supply will continue to rise. Few analysts expect such a deal, pointing to record OPEC production and a tendency by the group’s key members, such as Saudi Arabia and Iran, to protect their market share at the expense of prices. “I certainly don’t advocate a cut”.

Iran, OPEC’s third-largest producer, boosted output after Western sanctions were lifted in January, and had refused to join OPEC and some non-members in an accord earlier this year to freeze production levels. However, even if an agreement can be reached it is important to take into account that Nigeria and also Libya would raise the production rates back to a normal level once the national crisis are overcome.