(Bloomberg) -- From an attempted coup in Venezuela to tougher sanctions on Iran and disrupted flows from Russia, global oil markets have been roiled by a host of supply crises over the past week.
The surprising result is that prices have kept sliding.
Crude’s indifference to the array of threats reflects that world markets remain comfortably supplied for the time being, largely thanks to the ongoing surge in American production, which hit a new record last week. Prices are also capped by worries about the global economy, with manufacturing data from China and the U.S. showing that growth remains fragile.
Oil has retreated almost 3 percent in London this week to trade near $70 a barrel, leaving it about $5 a barrel below the five-month high reached on April 25. Prices climbed 27 percent in the first quarter, their strongest in a decade, on production cutbacks by OPEC and its partners, but the rally has subsequently lost steam.
“It shows that in an age of OPEC-led production restraint and geopolitical concerns, surging U.S oil output is more than capable of stunting upward pricing pressures,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. in London.
Brent for July settlement fell 49 cents, or 0.7 percent, to $70.26 a barrel on the London-based ICE (NYSE:ICE) Futures Europe exchange at 10:27 a.m. local time. It fell to a three-week low of $70.75 on Thursday. This week’s loss would snap a five-week run of gains.
Venezuela, Iran
There’s been no shortage of catalysts to give the market a renewed boost.
In OPEC member Venezuela, opposition leader Juan Guaido launched an uprising against President Nicolas Maduro on April 30 with the backing of the U.S. government. The country’s oil output has already plummeted to the lowest in decades because of an economic meltdown, and is at risk of collapsing entirely if the political standoff escalates.
Fellow OPEC nation Iran suffered another blow on Thursday as the U.S. tightened sanctions, ending a system of waivers that had allowed several countries to continue purchasing Iranian crude.
The crackdown could slash Iran’s exports by as much as 900,000 barrels a day, according to Goldman Sachs Group Inc (NYSE:GS)., or roughly two-thirds. Saudi Arabia, the world’s biggest oil exporter, has given mixed signals on how quickly it will heed President Donald Trump’s call to fill the resulting supply gap.
Libya Unrest
The political situation in a third OPEC producer, Libya, remains fraught as militia commander Khalifa Haftar keeps up his campaign to wrest the capital, Tripoli, from government forces.
In addition to these impending and potential supply risks, there has also been interruption to current oil flows.
Supplies from Russia to eastern Europe along the country’s biggest export pipeline have been disrupted since April 21 as a result of chemical contamination. Restoring normal flows may take months, a spokeswoman for Belarusian state petrochemical company Belneftekhim said April 30, though Russia’s Deputy Prime Minister Dmitry Kozak gave a more upbeat estimate of two weeks.
Despite the threats to supply, oil prices have continued to weaken, with U.S. benchmark futures now heading for their first back-to-back weekly decline of the year.
West Texas Intermediate crude for June delivery declined 29 cents to $61.52 a barrel on the New York Mercantile Exchange. The contract has fallen almost 3 percent this week, on track for the biggest weekly loss since early March.
That’s in large part due to the sustained gusher of new oil flooding in from the U.S., as the nation’s shale boom continues. Production reached a record 12.3 million barrels a day last week, and crude stockpiles swelled by 9.93 million barrels, according to the Energy Information Administration. That’s more than four times what analysts had anticipated.
There are also persisting concerns about the demand outlook amid slowing global economic growth and the drag from the unresolved trade dispute between the U.S. and China. Manufacturing data from the two countries, the world’s top oil consumers, underscored the fragility.
“Oil’s rally was mainly driven by the U.S. sanctions on Iran and OPEC’s output cuts, which have already happened,” said Kim Kwangrae, a commodities analyst at Samsung (KS:005930) Futures Inc. in Seoul. “But further gains in American shale production and the possibility of OPEC+ ending its curbs will likely drag prices down from here, and they could go as low as the high 50s.”
