Oil slips below $45 after OPEC update

Oil fell below $45 a barrel for the first time in three months after OPEC said the oil overhang had grown even bigger than during the financial crisis.

North Sea Brent, the international benchmark, fell 3 per cent to $44.33 a barrel, the lowest since August, while US benchmark West Texas Intermediate slumped 2.9 per cent to $41.69 a barrel.

OPEC, which pumps a third of the world’s oil, said on Thursday that inventories of crude oil in advanced economies were more than 210m barrels above the five-year average, outstripping the build-up in 2009.

“The build in global inventories is mainly the result of the increase in total supply outpacing growth in world oil demand over the first nine months of this year,” OPEC’s analysts said in its monthly oil market report.

Signs of the glut have been growing, with more than 100m barrels of crude and heavy fuels on tankers at sea and with onshore storage nearing capacity courtesy of a year-long surplus of nearly 2m barrels a day.

Saudi Arabia, OPEC’s de facto leader, has shown no sign of reversing course on its policy of keeping the taps open in an attempt to win back customers from higher-cost producers.

The world’s largest exporter told OPEC it had pumped 10.3m barrels a day in October, largely unchanged from September but up at least 600,000 b/d on the same time last year.

Iraq, the second-largest producer in the producers’ cartel, has also been raising output, and sending more tankers to the US as North American production starts to slip in the face of lower prices.

Including output from the semi-autonomous northern Kurdistan region, Iraq’s output has risen about 700,000 b/d since this time last year to more than 4m b/d.

Analysts have cautioned, however, that record output from Iraq may not rise much further, with low prices and security costs constraining its producers.

The International Energy Agency, the west’s oil watchdog, forecast this week that Iraqi output would not rise significantly during the next five years.

“In a low price environment we are approaching peak capacity from Iraq,” said Olivier Jakob at Petromatrix in Zug, Switzerland.

OPEC has forecast that demand for its crude next year will average about 30.8m b/d as demand rises and output outside the cartel slips.

Current OPEC output is about 30.2m, but Iran’s production and exports are expected to rise early next year once sanctions are lifted under this year’s nuclear deal.