Oil Set for Biggest Weekly Loss Since February on Supply Concern

(Bloomberg) -- Oil is poised for the biggest weekly loss since February on concerns over growing supply at a time when speculation is increasing that U.S. sanctions on Iran won’t cut the OPEC producer’s exports to zero.

While futures in New York edged higher on Friday on signs of a possible trade deal between the U.S. and China, they’re still on course for a 5.7 percent weekly loss. The Organization of Petroleum Exporting Countries increased production in October to the highest level since 2016, while Russia was said to raise output to a post-Soviet record. Meanwhile, India and South Korea were said to agree with the U.S. on the outline of waivers from sanctions to keep importing some Iranian oil.

Oil is approaching a bear market with prices falling about 16 percent from a four-year high in October as a rout in global equity markets and U.S.-China trade tensions stoked concerns over economic growth. As the U.S. prepares to impose sanctions on Iran on Nov. 5, OPEC and its allied producers have sent mixed supply signals to the market, while American inventories and production have risen.

“In theory, we could have been in a bullish market because of sanctions against Iran. But rising production from Saudi Arabia and others, coupled with a global equity rout and concerns over economic outlook, is weighing on prices,” Jun Inoue, a senior economist at Mizuho Research Institute Ltd., said by phone from Tokyo. “As South Korea and India reportedly agreed with the U.S. on waivers, the Iran factor is weakening.”

West Texas Intermediate for December delivery rose 0.1 percent to $63.77 a barrel on the New York Mercantile Exchange at 2:26 p.m. in Tokyo after earlier dropped as much as 0.7 percent. The contract fell $1.62 to $63.69 on Thursday. Total volume traded was 10 percent above the 100-day average.

Brent for January settlement rose 0.5 percent, or 36 cents, to $73.25 a barrel on the London-based ICE Futures Europe exchange. The contract is down 5.6 percent this week for a fourth consecutive week. The global benchmark crude traded at $9.33 premium to WTI for the same month.

Prices pared earlier losses on Friday after Bloomberg news reported that U.S. President Donald Trump wants to reach an agreement on trade with Chinese President Xi Jinping at the Group of 20 nations summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms.

The end-of-week bounce wasn’t enough to offset losses earlier in the week as speculation mounts that supply is exceeding expectations.

OPEC’s output rose by 430,000 barrels to 33.33 million barrels a day in October, according to a Bloomberg survey of officials, analysts and ship-tracking data. Saudi Arabia increased output by 150,000 barrels to 10.68 million a day last month, the highest in Bloomberg data going back to 1962, while Iran’s production slipped by 10,000 barrels a day to 3.42 million, the lowest since March 2016.

See also: Iran Sanctions Kick in, Bringing Biggest Oil Disruption in Years

Despite the lower output from Iran, some exports from the Persian Gulf nation will likely continue if the Trump administration officially grants waivers to India, South Korea and potentially others. While the outline of waivers for India and South Korea was agreed, no final decision has been made and an announcement is unlikely before the sanctions are reimposed, according to Asian officials with knowledge of the matter.

Meanwhile, Russia raised crude and condensate output to a record of almost 11.41 million barrels a day in October, according to a government official, who asked not to be identified. Russian Energy Minister Alexander Novak suggested in late October the country may keep its output at the current level above the Soviet-era record or boost production further.

©2018 Bloomberg L.P.