Oil slips below US$86 on global oversupply

-A +A

LONDON (Oct 20) - Brent crude slipped below US$86 a barrel on Monday, resuming a downward move that took the global oil benchmark to near a four-year low last week as supply overwhelmed weak demand in several key markets.

Abundant global oil supplies, particularly of high quality, light oil, coupled with a gloomy economic outlook from Europe to China pushed Brent last week below US$83, its lowest since 2010.

Oil prices are down more than 25% since June.

Energy economists have slashed their forecasts of world oil demand growth for next year as the global economic outlook weakens.

And it is not clear if the Organization of the Petroleum Exporting Countries will decide to cut output to support prices when they meet for a biannual gathering on Nov. 27.

Saudi Arabia, Kuwait and Iran have all indicated reluctance to change supply policy.

Brent was down 60 cents at US$85.56 by 1330 GMT after rallying 2% on Friday, its biggest gain in over a month.

U.S. crude fell 20 cents to US$82.55 a barrel.

Hans Van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said he expected Brent crude to resume its move towards recent lows as oil supply exceeded demand.

"A test of the US$75 to US$80 range could be seen this week or next week," van Cleef said. Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt, agreed oil was likely to fall further.

"The (recent) price recovery is unlikely to last unless we get clear messages from OPEC that they will curtail production."

Output has been halted temporarily for environmental reasons at the Saudi-Kuwait Khafji oilfield, which has output of 280,000 to 300,000 barrels per day (bpd), a little more than 2 percent of Saudi Arabia's total production capacity.

But the move is unlikely to affect oil supplies from Saudi Arabia, the world's top exporter, because the kingdom has significant surplus capacity.

Morgan Stanley oil analyst Adam Longson said the closure of the Khafji oilfield was a temporary factor for the market.

"The shutdown was not aimed at OPEC policy and ultimately may not affect production, given spare capacity," Longson said.

Saudi Arabia pumped around 9.7 million bpd in September but says it has the ability to produce as much as 12.5 million bpd.

Investors kept a wary eye on any disruption to oil supply from geopolitical developments.

Tension mounted as Islamic State's fight against Kurdish defenders further destabilised the Syrian border town of Kobani.

Traders are also concerned about uncertainty over who is in charge of Libya's vast oil reserves, after a self-styled government controlling Tripoli announced its oil policies.

Libya is currently producing 800,000 bpd of oil, down more than 40% from its peak of 1.4 million bpd in mid-2013.