Oil prices slide 3% on concerns with oversupply

Oil futures slid on Thursday, with United States (US) crude oil falling by almost 3% as observers fear that US inventories will continue to rise while increased sanctions on Iran had a more muted immediate impact than previously expected.

Brent crude oil futures ended the day’s session lower by US$1.43 per barrel, or 2% to US$70.75 while US West Texas Intermediate crude futures settled 2.8% or US$1.79 per barrel lower, to US$61.81.

As of 8.35am GMT, oil prices continued their price fall with Brent lower at US$70.08 and US crude oil at US$61.37.

Last week, crude production in the US rose to a record high of 12.3 million barrels per day. Stockpiles were at their highest since September 2017, jumping by 9.9 million barrels to 470.6 million barrels, government data showed.

US refineries are due for maintenance this spring, and some observers are concerned that the demand for crude oil will be soft, causing stockpiles to rise further.

According to the International Energy Agency (IEA), the biggest new source of oil supply comes from the US, as total oil supplies from the country is expected to grow by 1.6 million barrels per day for this year.

The recent US tightening of sanctions on Iran had led to a more muted immediate impact, causing market sentiment to turn bearish. The roll-back on waivers to buyers of Iranian oil – countries including China, India, Italy, and Greece - had not led to a shortage in supply, said experts.

Supply cuts from the Organization of the Petroleum Exporting Countries (Opec), which has driven crude prices to rise by over 30% this year, may not be sustainable if other producers take action in increasing their output. Russia, for example, has been sending signals on potentially increasing its output.

Oman energy minister Mohammed bin Hamad al-Rumhy said recently that Opec was intending to extend its supply cuts at its meeting in June.