A bearish supply signal from Opec members Saudi Arabia and Kuwait saw the
already waning oil price drop overnight and this morning.
The two countries announced on Tuesday that they would be re-opening the
jointly operated 300,000-barrels-per-day Khafji field,
Reuters
reports
.
Both are among the largest producers in the Opec cartel and Saudi Arabia is
also among a few oil powers that can influence the overall global supply
outlook, so the news has knocked hopes of a deal to rebalance the market.
International price benchmark Brent crude had closed lower on Tuesday and,
after a brief relief rally yesterday, in the wake of a dovish speech by Janet
Yellen, the Federal Reserve chairwoman, that hit the US dollar, it has dropped
back again. Brent was more than one per cent down this morning, to below $39 a
barrel.
Saudi Arabia and Kuwait are among the 15 countries scheduled to meet in
Doha, Qatar, on 17 April to discuss freezing production at January levels in an
effort to alleviate the ongoing global oil glut. But renascent oil power Iran
is unlikely to participate and signs that mothballed Opec supplies are being
brought back online are also not a good indicator.
"The fact that the announcement comes so shortly before the meeting in
Doha is a disastrous sign," said Commerzbank oil analyst Carsten Fritsch.
"It gives the impression that the lip service paid to freezing oil
production is nothing but hot air."
Earlier this week,
Reuters
reported that Iranian sources had reaffirmed the country's intentions
not take part in any production freeze until it has returned output to
pre-sanction levels. Some analysts believe the freeze will not be sufficient to
undo a supply overhang in the short term in any case.
A report from the US Energy Information Administration yesterday emphasised
the scale of current stockpiles, says the
Wall
Street Journal
. Crude reserves grew to a new
record for the seventh straight week, albeit by a slightly less-than-expected
2.5 million barrels, while even a three million barrel draw down on gasoline
stocks was offset by evidence of a big jump in refinery activity.
"More juice is coming," warned Donald Morton, the senior vice
president and runner of an energy trading desk at Herbert J. Sims & Co.
(www.
theweek.co.uk/)