While the oil price has remained steady and even gained slightly in the last day, analysts speculate the price could be impacted further by an oversupply from the Organization of the Petroleum Exporting Countries.
After a dramatic 7-percent drop earlier this week, the price of Brent crude has stabilized at US$67.05 a barrel.
While the price has steadied and even gained slightly in the last day, analysts speculate the price could be impacted further by an oversupply from the Organization of the Petroleum Exporting Countries (OPEC).
OPEC nations have been increasing production to offset a possible supply shortage from Iran, which faces tough sanctions from the US that have impacted oil exports.
The US sanctions, which came into effect on November 5, were minimized when US President Trump issued final hour exemptions for 8 nations, including Japan, India and South Korea. These sanction-exempt countries will be allowed to import oil produced in Iran.
“The Russians and the Saudis in particular ramped up production, ramped up exports ahead of what was supposed to be severe sanctions on Iran, and when the administration gave the eight waivers to Iran’s largest buyers, it undercut that whole equation.”
Trump’s last minute flip flop came after months of tough talk from the US leader, and a cryptic November 2 tweet, that boasted the impending sanctions.
To shore up global supply in the midst of a potential shortage, Saudi Arabia, the top OPEC nation, had increased production at its facilities. Similar ramp ups also occurred in other OPEC nations.
It was these series of events that came together earlier this week and drove crude down to its lowest price all year, US$55.69.
In an effort to correct the growing surplus, Saudi Arabia is mulling over the idea of cutting 1.4 million barrels a day next year to counteract the swelling stores. However, many speculate the move may not be enough to keep the prices from sinking to the same lows witnessed between 2014 and 2016.
“[A cut] helps, but based on my balances, I think we’ll need to see 1.5 million bpd at least for the first half of the year. Words aren’t going to work. The market is going to need to see action as well,” ING commodities strategist, Warren Patterson, told Reuters.
In the last six weeks alone the price of oil has dropped by 25 percent.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.