A bearish supply signal from Opec members Saudi Arabia and Kuwait saw the already waning oil price drop overnight and this morning.
The two countries announced on Tuesday that they would be re-opening the jointly operated 300,000-barrels-per-day Khafji field, Reuters reports.
Both are among the largest producers in the Opec cartel and Saudi Arabia is also among a few oil powers that can influence the overall global supply outlook, so the news has knocked hopes of a deal to rebalance the market.
International price benchmark Brent crude had closed lower on Tuesday and, after a brief relief rally yesterday, in the wake of a dovish speech by Janet Yellen, the Federal Reserve chairwoman, that hit the US dollar, it has dropped back again. Brent was more than one per cent down this morning, to below $39 a barrel.
Saudi Arabia and Kuwait are among the 15 countries scheduled to meet in Doha, Qatar, on 17 April to discuss freezing production at January levels in an effort to alleviate the ongoing global oil glut. But renascent oil power Iran is unlikely to participate and signs that mothballed Opec supplies are being brought back online are also not a good indicator.
"The fact that the announcement comes so shortly before the meeting in Doha is a disastrous sign," said Commerzbank oil analyst Carsten Fritsch. "It gives the impression that the lip service paid to freezing oil production is nothing but hot air."
Earlier this week, Reuters reported that Iranian sources had reaffirmed the country's intentions not take part in any production freeze until it has returned output to pre-sanction levels. Some analysts believe the freeze will not be sufficient to undo a supply overhang in the short term in any case.
A report from the US Energy Information Administration yesterday emphasised the scale of current stockpiles, says the Wall Street Journal. Crude reserves grew to a new record for the seventh straight week, albeit by a slightly less-than-expected 2.5 million barrels, while even a three million barrel draw down on gasoline stocks was offset by evidence of a big jump in refinery activity.
"More juice is coming," warned Donald Morton, the senior vice president and runner of an energy trading desk at Herbert J. Sims & Co.
(www. theweek.co.uk/)
