Oil prices dropped sharply on Monday on concerns of a supply glut amid expectations of another output increase by the Opec+ group as well as the resumption of oil exports from the Iraqi Kurdistan region.
Brent, the benchmark for two thirds of the world's oil, was down 3.50 per cent at $66.80 a barrel at 12am UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 3.83 per cent lower at $63.20 a barrel.
The drop came amid expectations that the Opec+ group of oil producers will announce another output increase for November at its meeting on Sunday.
The alliance is considering boosting output by at least the same 137,000 barrels a day already planned for October, although actual increases may be smaller because of capacity constraints among some members, Soojin Kim, research analyst at MUFG, said in a note on Monday.
“While China’s robust crude purchases have provided a cushion, the group’s shift towards reclaiming market share rather than managing prices has raised concerns about long-term oversupply,” she said.
Members of the Opec+ group of oil producers led by Saudi Arabia and Russia have been increasing production since April this year as the group shifts focus on regaining market share. Opec+ agreed in August to increase oil production by 547,000 bpd for September, after a larger-than-expected increase of 548,000 bpd rise in August and 411,000 bpd in May, June and July.
“So far, oil markets have absorbed the additional barrels produced by Opec. However, further gains could be capped if global supply rises,” said Vijay Valecha, chief investment officer at Century Financial.
“Nevertheless, barring Saudi Arabia, most Opec member countries have reached their production ceilings, which means the planned October hike and potential November boost could end up being lower than previously announced.”
Oil prices also dropped as crude exports resumed after more than two years from Iraqi Kurdistan, which reached an agreement last week with the federal government.
Crude exports began through the pipeline from the semi-autonomous Kurdistan region to Turkey on Saturday, Iraq's Oil Ministry said.
“Iraq has resumed oil exports from Kurdistan after a two-and-a-half-year halt, which could boost international supply by an estimated 190,000 barrels per day,” said Mr Valecha.
The International Energy Agency has raised its forecast for oil supply growth this year after the Opec+ production rise and lowered its demand forecast due to lacklustre demand across the major economies.
The IEA expects world oil supply to rise by about 370,000 bpd to 2.5 million bpd in 2025. Meanwhile, oil demand will rise by 680,000 bpd this year, down from 700,000 bpd forecast, the Paris-based agency said.
