Crude Traders Split on Whether the Glut Has Arrived
Doubts about the glut predictions were evident earlier in the year as well. August oil export flows, for instance, trended above the ten-year average, but demand was pretty robust as well, absorbing the higher volumes.
“Despite fears that the swift unwinding of production cuts from the eight core OPEC+ members, and subsequent increased exports mainly from Saudi Arabia and the UAE could push crude markets into oversupply, this has not concretely materialised as of yet,” Vortexa analyst Mark Toth said in late August. The energy analytics firm also noted that demand for oil globally was strong enough to soak in the higher volumes produced in South America—often cited as the basis for the glut predictions, with a focus on Brazil and Guyana.
Now, there’s talk of further Western sanctions on Russia’s energy industry, which will also have a positive effect on prices as it potentially threatens supply availability. “The G7 is preparing tougher sanctions on Russia, targeting energy, finance, and defence sectors, while also weighing restrictions on countries and entities helping Russia bypass existing curbs,” MUFG analyst Soojin Kim said, as quoted by The National.
This automatically means upward pressure on oil prices, but this pressure tends to be limited because for all his rhetoric with regard to Russia and oil sanctions, President Trump has no interest in higher international oil prices, which would lift fuel prices at home, and traders are aware of that.
Besides, lately the effect of these announcements has been temporary as Vanda Insights’ Hari noted to The National, but it does suggest that the overall perception of oil markets is not exactly one of excess supply. Were that the case, prices wouldn’t move on any news about future sanctions that have so far failed to make a significant dent in Russian outflows. Similarly, prices have largely stopped reacting to OPEC’s production growth announcements—and that’s an even stronger signal that reports of a glut may be a bit premature.
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By Irina Slav for Oilprice.com
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