Crude extends losses on unfavorable demand, supply fundamentals

Singapore — Oil prices ticked lower during the mid-morning trade in Asia Sept. 28, as the market fretted over exacerbating worries on both the demand and supply side.

At 10.42 am Singapore time (0242 GMT), ICE Brent December crude futures were trading at $42.20/b, down 21 cents cents/b (0.50%) from the Sept. 25 settle, while the NYMEX November light sweet crude contract was at $40.06/b, down 19 cents/b (0.47%).

Crude extended losses seen in the trading week ended Sept. 25, during which the December contract for Brent and the November contract for WTI recorded a decline of 2.91% and 2.09%, respectively to settle at $42.41/b and $40.25/b on Sept. 25.

Market sentiment remained bearish due to the prospects of fresh lockdown restrictions in Europe amid a resurgence of the coronavirus pandemic and as trade tensions between China and the US showed signs of accelerating.

The Trump administration issued new licensing restrictions on US firms exporting certain products to Semiconductor Manufacturing International Corp., China's biggest semiconductor manufacturer.

ANZ analysts said in a Sept. 28 note, "Overall market sentiment is somber due to surging infection rates" and added that "should the [US-China] tension escalate, this could be seen as another headwind for economic growth."

On the supply side, the market grew cautious of a possible oversupply scenario, as oil exports from Libya gained momentum after the Libyan National Army lifted the country's blockade on oil exports and as speculation of Iraqi non-compliance to the OPEC+ production agreement surfaced.

Stephen Innes, Chief Global Markets Strategist at AxiCorp., said in a Sept. 28 note: "The prospect of Libyan exports restarting are likely to cap prices this week until the US inventory data reports," before explaining that "A third Libyan port reopened earlier this week in the latest sign that the political situation is stabilizing, suggesting a clear upside risk to the [approximately] 200kb/d seen this year."

Regarding the speculation over Iraqi non-compliance, Innes added: "Traders also report a spike in the volume of Iraqi crude cargoes being sold in the spot market for October loading, prompting concerns about the OPEC+ agreement."

The reports of an increase in the sale of Iraqi crude come after the Iraqi federal government blamed the Kurdistan Regional Government for not cutting back to the limits required by the OPEC+ agreement, with latter denying those allegations, S&P Global Platts reported Sept. 24.