Crude oil prices fell on Monday as China’s oil imports dropped sharply and markets were expected to be increasingly oversupplied following OPEC’s decision to keep its production targets unchanged.
China, the world’s biggest net oil importer, bought nearly a quarter less crude in May than it did in the previous month, according to official data. Its imports of oil products also fell just over six percent while product exports fell 10 percent.
China’s fall in imports came after the Organization of the Petroleum Exporting Countries (OPEC) agreed on Friday to stick to its policy of high output, which stands above 30 million barrels per day, exacerbating worries about a glut in a market where millions of barrels of crude are stored without a buyer.
“Crude demand/supply remains in excess of supplies,” said Yasushi Kimura, president of the Petroleum Association of Japan (PAJ) after OPEC’s decision.
Front-month Brent futures dropped to a low of $62.70 per barrel on Monday before recovering to $63.06 a barrel by 0655 GMT, still down 25 cents. U.S. crude was at $58.90 per barrel, down 23 cents, and analysts said oil prices would likely fall further.
“The oil market still looks like it is heading for trouble … Even if year-on-year U.S. supply growth does slow dramatically in Q2, with OPEC producing at 31 million bpd, the oil market surplus, although shrinking in H2, is set to persist for the whole year,” Barclays said on Monday.
“This means that global oil stocks, already at record highs, will continue to climb, resulting in further downward pressure on prices and a likely re-widening of Brent’s contango, as the market seeks out increasingly expensive capacity to store the excess crude and products,” it added.
OPEC ministers said the group may even exceed the 30 million bpd target, especially if there is rising production and exports from Libya, Iraq or Iran.
“We forecast that Saudi and other low-cost producers will continue to increase output as this is the next logical step to maximizing revenues in the face of shale oil’s scalability,” Goldman Sachs said, adding that the global oil market would remain oversupplied in 2016.
Adding to the glut, analysts also expect U.S. drilling to start increasing again in the second half of this year following 26 weeks of declines.