NEW YORK, 14 Nov 2018:
Oil’s slide accelerated yesterday – with US futures suffering their steepest one-day loss in more than three years, due to ongoing worries about weakening global demand and oversupply.
US futures closed down 7.1% – for a record 12th straight decline and the lowest since November 2017. More than 980,000 contracts changed hands, as funds shed positions.
“It’s like a run on the bank,” said Phil Flynn, analyst at Price Futures Group in Chicago. “It’s getting to the point where it doesn’t seem to be about fundamentals anymore, but a total collapse in price.”
Traders said the selling was an extension of Monday’s, which was triggered after US president Donald Trump posted a tweet meant to put pressure on the Organisation of the Petroleum Exporting Countries (OPEC) not to cut supply to prop up prices.
Trump’s tweet followed weekend reports that Saudi Arabia was considering a production cut at the December OPEC meeting, on increased alarm that supply has started to outpace consumption.
Speculators have pulled back on heavy bets on an oil rally, a process that continued yesterday, traders said. As of last week, hedge funds and other money managers had reduced their long position in oil contracts to their lowest since August 2017.
Traders said that recent weakness in equities has fanned concerns about global growth, which is also contributing to declines in oil.
US crude futures settled down US$4.24 or 7.1% to US$55.69 a barrel. It was the largest one-day percentage decline for the contract since September 2015. US crude has lost 28% since its early October peak.
Brent ended down US$4.65 or 6.6% to US$65.47 a barrel, the largest one-day loss since July. Brent has lost 25% since peaking at a four-year high in early October. It now sits at levels not seen since March.
They have lost over a quarter of their value since early October in what has become one of the biggest declines since prices collapsed in 2014.
Oil markets are being pressured from two sides: a surge in supply and increasing concerns about an economic slowdown.
In its monthly report, OPEC said world oil demand next year would rise by 1.29 million barrels per day (bpd), 70,000 bpd less than predicted last month and the fourth consecutive forecast cut. Output, however, rose by 127,000 bpd to 32.9 million bpd, OPEC said.
Saudi energy minister Khalid al-Falih had said on Monday OPEC agreed there was a need to cut oil supply next year by around 1 million barrels per day from October levels to prevent oversupply.
Even as the Saudis have promised to reduce output, US production reached 11.6 million bpd in the most recent week, a new record. Russia has given mixed signals about a cut, with Lukoil chief executive Vagit Alekperov saying on Monday that he did not see cuts being necessary.
“They can’t make up their minds on a cutback or not,” said Bob Yawger, director of energy futures at Mizuho. “These strange bedfellows no longer seem like they’re in the same bed anymore.”
US crude oil output from its seven major shale basins is expected to hit a record of 7.94 million bpd in December, the US Department of Energy’s Energy Information Administration said yesterday.
That surge in onshore output has helped overall US crude production hit a record 11.6 million bpd, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.
Most analysts expect US output to climb above 12 million bpd within the first half of 2019.
“This will, in our view, cap any upside above US$85 per barrel (for oil prices),” said Jon Andersson, head of commodities at Vontobel Asset Management.
– Reuters