The weakening of Asian economies and the record supply threaten to create an overabundance of oil

SINGAPORE (Reuters) – Oil traders' worries over record supplies in Asia, as prospects for its key growth economies weaken, have led to a decline in global benchmarks for crude since early October. .

Vessel tracking data show a record high of more than 22 million barrels of crude oil per day reaching major Asian markets in November, up about 15% by January 2017 and nearly 5% since the beginning of this year .

Much of this oil was ordered ahead of the US sanctions against Iran that were imposed this month, as refiners were preparing for a sudden drop in supply.

But with Washington's broad, unexpected waivers allowing major Asian oil consumers to continue to buy Iranian crude, the decline in global supply has not materialized.

The global supply has increased rather, driven by the skyrocketing production of the world's three largest producers – the United States, Russia and Saudi Arabia – which, in October, have for the first time joint production of 33 million barrels per day, accounting for more than a third of total gasoline consumption.

This increase has so far been met by sustained demand, not only in the major emerging Asian economies of China and India, but also in the mature markets of Japan and South Korea.

Now, however, the rise in inventories is threatening to become an overabundance, resulting in the sale of 25% of cash spot contracts. LCOc1 CLc1 since early October, financial traders having withdrawn their money from oil markets.

Analysts warn that the situation could worsen, with growing signs of slowing in the largest Asian economies.

"The momentum still seems to be slowing down in the region, under the combined effect of tighter financial conditions and a slowing of trade," said Frederic Neumann, co-head of economic research for the region. 39, Asia at HSBC in Hong Kong.

Economic half-turn

China, the largest economy in Asia, is likely to experience a first decline in car sales in 2018, while consumption is stifled by the trade war between Washington and Beijing.

In Japan, the economy contracted in the third quarter, hit by natural disasters, but also by a decline in exports in a context of increasing protectionism, which is beginning to weigh on global trade.

And in India, the fall of the rupee has led to higher import costs, especially for oil, sweltering purchases in one of the largest emerging markets in Asia. Car sales in India are also expected to decline this year.

"While in recent months, the focus was on the embargo on Iran and Venezuela's production difficulties, namely the risks of insufficient supply, the market seems to more and more concerned about the prospects of a too large supply, "said Norbert Ruecker, head of commodities. research at the Swiss bank Julius Baer.

"Hedge funds and other hedge funds have evolved rapidly, from the longest to the shortest," he said.

As recently as September and October, major traders and oil analysts were predicting oil prices of $ 90 or $ 100 per barrel by the end of the year.

Since then, sentiment has changed dramatically and the entire crude oil forecast curve has been reversed.

Spot prices in September were significantly higher than futures, a structure known as backwardation that involves a tense market because it is unattractive to store oil.

At the beginning of the week, the curve had moved into the contango, when crude prices for immediate purchases were cheaper than those of subsequent shipments. This implies an oversupplied market in which it is interesting to store oil for later sale.

Neumann, of HSBC, said the outlook for 2019 remained downward: "Economic activity continues to slow, which is likely slowing growth in underlying energy demand for some time."

(This was rebroadcast to add the deleted word in the first paragraph.)