Saudi Arabia And Iran Pump Record Volumes As Analysts Warn Again of Supply Glut

Bijan Namdar Zanganeh, oil minister for Iran, was quoted this week as saying his country's production was at 3.85 million bpd

While freeze talks dominated analytical circles for the first part of this week and resulted in a brief price uptick for oil, worries of the global glut returned full force on Wednesday with reports of Saudi Arabia pumping record amounts and Iran producing faster than expected.

The news sent Brent futures down 2.3 percent at $43.93 per barrel and West Texas Intermediate down 2.48 percent to $41.71 per barrel; it also caused observers to further doubt the veracity or viability of a freeze agreement being reached by the Organization of the Petroleum Exporting Countries (OPEC).

Greg Priddy, director of global energy with Eurasia Group, remarked, "I'm sceptical that we're going to see anything out of OPEC [and] I don't see anything out of Saudi; their silence is rather telling."

Saudi Arabia's production reportedly rose to a record 10.67 million barrels per day (bpd) in July, and Bijan Namdar Zanganeh, oil minister for Iran, was quoted this week as saying his country's production was at 3.85 million bpd (a level the U.S. Energy Information Administration thought would not be achieved until 2017).

Mark Routt, chief economist for the Americas at KBC Advanced Technology, told Reuters that all this activity, combined with gasoline and diesel stockpiles swelling to record highs across the globe, means that "unless and until inventories drop, we will not see a sustainable increase in crude prices."

To which an unnamed Canadian refinery executive added, "No one consumes crude, they consume products; until we see those inventories come down, it will be real difficult for crude to have a strong rally again."

Routt went on to say that Asian refiners including Japan, South Korea, and China are adding to the glut by exporting excess fuels overseas (indeed, China on Monday reported record refined product exports).

As such, and because neither China or the U.S. are likely to alter course, Routt predicts the biggest victims of the glut will be European and Russian refineries, which will be forced to make deep production cuts.

But the price doldrums caused by the glut aren't worrisome to everyone; on the contrary, Tim Seymour, managing partner of Triogem Asset Management and founder of EmergingMoney.com, says oil at current levels is "a great buy" because a climb to above $50 on Brent is likely towards the end of this year.