Crude oil futures dipped on Tuesday as analysts warned of an intensifying producer race between Saudi Arabia and Iran, wiping out earlier price gains that came from a weaker dollar and a flood of new cash into the market.
Front-month Brent crude futures were trading at $44.37 per barrel at 0639 GMT, down 11 cents from their last settlement. US crude futures were down 12 cents at $42.52 per barrel.
The dips erased earlier gains on Tuesday from a weaker dollar and by a rush of new investment into crude futures.
And while BP’s chief executive Bob Dudley said on Tuesday that “robust demand and weak supply growth will move global oil markets closer into balance by the end of the year,” analysts warned of a deeper glut as Saudi Arabia and Iran seemingly ramp up output in a race for customers.
“The biggest bear risk to the oil market right now is that Iran’s ramp-up accelerates and then that Saudi Arabia does the same,” Citi said in a note to clients.
“If anyone had a doubt about Saudi Aramco’s ability to use its logistical system and spot sales to increase market share, its recent 730,000 barrel sale of a cargo to a Chinese teapot refiner in Shandong should lay any doubts to rest,” it added.
The cargo will be lifted in June from Aramco’s storage in Japan’s Okinawa prefecture and shipped to China’s eastern province of Shandong, Reuters reported on Monday.
Citi said it was likely that Saudi Arabia was targeting 500,000 barrels per day (bpd) in new sales to bring its production up to at least 11 million bpd or higher.
BMI Research said that it had upgraded its Saudi Arabian crude production forecast, “reflecting the failure of the meeting at Doha, planned increases in output capacity and the creeping politicization of oil under deputy crown prince Mohammad bin Salman.”
The company said that it expected Saudi output to average 10.3 million bpd, up from a previous estimate of 10.2 million bpd.
Iran wants to get back to pre-sanction production of 4 million bpd.
Traders said that a looming gasoline glut in Asia also threatened the recent rise in prices as refiners flood the market with unwanted products.