Brent slides to six-month low of $72/b amid excess supply

Oil has slipped to a six-month low despite a buoyant rally mid-year on the back of excess supply, with Iranian exports far from being purged from the markets.

The price of benchmark Brent fell to $72.84 per barrel as of 12:52am Eastern Time on Friday, a steep drop after having held above $80 per barrel for much of the summer.

The price of West Texas Intermediate, which tracks North American crude grades meanwhile fell to $63.61/b, after having performed around the $70/b range since mid-May.

The price collapse comes as a shock to the markets, which had anticipated a rally after the US administration under President Trump forced Iran’s crude buyers to slash exports ahead of the implementation of sanctions on November 4.

Iran’s biggest buyers including China, which increased their Iranian offtake by 37,000 barrels per day during the first eight months of the year are expected to cutback up to 75 per cent in November, following the implementation of sanctions.

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Around 1.1 million bpd of Iranian oil is expected to be lost to the market, according to energy consulting firm Wood Mackenzie, while Canada's RBC Capital Markets has suggested a deeper cut of around 1.3 to 1.7 million bpd to the markets.

Investment bank Goldman Sachs meanwhile maintains a bullish outlook for Brent, maintaining its forecast at $80/b, with the continued expectation of US sanctions biting hard on Iran’s exports as well as limited spare capacity among Opec states.

Swiss lender Julius Baer on the other hand noted that while near-term supply risks persisted in the markets, the producers’ supply cushion would be on the mend with oil expected to trend much lower in 2019.

"The Iran embargo leaves the oil market with only a small buffer to absorb additional shocks. Venezuela and Libya are the key wild cards, and any negative surprise would leave the oil market in short supply,” Juliius Baer said in its latest note.

"The price risks remain skewed to the upside. But heading into next year, the oil market’s supply cushion should be restored, and upside risks should disappear,” it added.

The US shale boom and slowdown on oil demand growth in the energy markets is expected to maintain a cooler oil price environment heading into the new year, added the report.