Oil prices tumbled on Tuesday, with Brent crude falling to a nine-month low as ample supplies in Europe and North America outweighed fears that violence in the Middle East and North Africa could disrupt production. Worries about prolonged geopolitical tensions in key producing regions had prompted a short rebound, but in the absence of supply disruptions, the market resumed its downward trend on Tuesday as traders and investors grew more nervous about seasonal weak demand and poor refinery margins in a market that appears to be abundantly supplied.
“We continue to see material risk to supply from Libya, Iraq and Russia, but the market over the past six weeks has become increasingly complacent regarding supplies,” said Tim Evans, an energy futures specialist at Citigroup in New York.
Brent crude lost 80 cents to settle at $104.61, the weakest settlement since November 2013.
U.S. crude lost 91 cents to settle at $97.38, the lowest settlement since early February.
The spread <CL-LCO1=R> between the two benchmarks closed at $7.23.
Global oil demand has been running below supply over the past few months, building up a glut of high quality crude oil in the West African, European and Asian markets. Brent for immediate delivery has been at a discount to futures for the longest period since 2011, a formation called “contango” that indicates a well-supplied market.
“At this moment the market is mainly supply-driven,” said Hans van Cleef, senior energy economist at ABN Amro in Amsterdam.
Worries about oversupply and weak demand have relegated geopolitical concerns to the background, erasing most of the risk priced into the market earlier this summer. Libyan oil output has dropped to around 450,000 barrels per day (bpd) from 500,000 bpd last week. Yet the state-run National Oil Corp says oilfields are secure despite prolonged clashes between rival militias in the capital, Tripoli.
Oil exports from Iraq, OPEC’s second-largest producer, rose to an average of 2.442 million bpd in July from 2.423 million in June, although Islamic State insurgents have tightened their grip in the north of the country. Oil prices pared some losses in post-settlement trading, after data from the American Petroleum Institute showed U.S. crude and product stockpiles dropped more than expected last week.
The industry group reported that crude inventories fell by 5.5 million barrels to 363.9 million in the week ending Aug. 1, compared with analysts’ expectations for a decrease of 1.7 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 51,000 barrels.