Gulf Oil Supply Outpaces Demand for First Time Since July

what happened

Crude shipments from the Persian Gulf are recovering, and according to Bloomberg, Middle East oil supply now exceeds demand for the first time since July. At the start of the week, the nearest Dubai timespread moved into contango, with the November contract trading about $2 a barrel below December, traders and brokers told the agency. They said exports from Saudi Arabia, the UAE, Iraq and Kuwait rose 10% last month to more than 15 million barrels a day, while Iranian flows are virtually halted.

Added barrels and the prospect of renewed peace talks between the United States and Iran have cooled prices after they reached a six-month high in October. North Sea grades that help set the physical Dated Brent price have also weakened. Phil Flynn of Price Futures Group said cargoes that are actually loaded and shipped are getting cheaper against benchmarks, which points to rising supply rather than nervous futures trading.

On Tuesday, December Nymex WTI futures slipped 0.4% to $96.09 a barrel, while December Brent fell 1.1% to $103.60. Separately, Saudi Aramco reported a 35% rise in third-quarter profit to $36.25 billion, up from $26.9 billion a year earlier. The company credited higher crude sales volumes and stronger prices for refined and chemical products.

why it matters

Oil is reacting to diplomacy headlines as much as to physical flows. Analysts at Barclays and Mizuho see little evidence of a real breakthrough, so part of the price move reflects hope among market participants. Plentiful Gulf barrels and a weaker timespread point to a looser physical market, which weighs on benchmarks.

market impact

Brent and WTI: rising Gulf supply and US-Iran talk hopes pressure crude prices lower.

• ▼Brent pressure down — higher Gulf supply and a shift of spreads into contango
• ▼WTI pressure down — hopes for US-Iran diplomacy reduce the geopolitical risk premium

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