Halfaya oilfield
File photo: A worker is seen at the new CPF3 oil station in the Halfaya oilfield in southern of Maysan province, Halfaya, Iraq. Image Credit: REUTERS

Abu Dhabi: Lower US crude oil inventories — coupled with a tropical storm in the Gulf of Mexico that is threatening oil production — are expected to provide further short-term gains for oil, analysts said, though the threat of oversupply continues to linger over the market in the long term.

Oil markets have risen to their highest levels in the last seven weeks, with Brent trading at $66.89 (Dh245.65) and West Texas Intermediate at $60.39 on Friday.

Those numbers could see continued momentum depending on the severity of the storm in the Gulf of Mexico along with increased political tensions with Iran.

“Oil has found some renewed upside momentum following a bigger-than-expected weekly reduction in US crude oil stocks of more than 9 million barrels per day (bpd) and news that the first tropical storm of the season in the Gulf of Mexico has led to the shutdown of 600,000 bpd or one-third of the US offshore production,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“On that basis we may see crude oil momentum carry the price higher in the short term,” he added.

Opec report

Despite the short-term momentum, Opec’s (Organisation of the Petroleum Exporting Countries) monthly report released last week pointed in the direction of oversupply in 2020, with non-Opec supply expected to reach 2.44 million bpd compared to the global demand of 1.14 million bpd.

“Non-Opec supply is forecast to grow by 2.4 million bpd in 2020, higher than in the current year. This is mainly due to the debottlenecking of oil infrastructure in North America and new project ramp-ups in Brazil, Norway and Australia,” the report stated.

“The 2020 non-Opec supply forecast, despite an expected increase in new pipeline takeaway from the Permian Basin by July 2020 of more than 2.5 million bpd, is subject to many uncertainties, including oil prices, investment discipline, hedging, cost inflation, unplanned outages related to technical issues, delayed start-ups and maintenance duration,” the report went on to say.

Along with Opec’s report, the International Energy Agency also released their monthly report last week in which they also pointed to an oversupply in the oil market in 2020.

“Our balances show the potential for oversupply next year, with a 2.1 million bpd expansion of non-Opec supply, led by the US, versus 2 million bpd in 2019. That will lower the requirement for Opec crude,” the report said.

“[The] decision by Opec+ ministers to extend their output agreement to March 2020 provides guidance but it does not change the fundamental outlook of an oversupplied market … Clearly, this presents a major challenge to those who have taken on the task of market management,” the report added.