Oil downside risk at four-year high on OPEC inaction fears

Fredrick Soto
November 21, 2018

Tuesday's crude trading seemed to dispel widespread notions of the previous session's modest price gains being the start of a recovery, with US crude diving to its lowest level in over a year due to mounting concerns over a global slowdown in economic growth.

U.S. West Texas Intermediate (WTI) crude futures, were up 76 cents, or 1.4 percent, at $57.22 per barrel.

Traders are betting that demand for oil will be weaker next year than previously expected, because growth will be lower as a trade war between the United States and China takes its toll.

Since this statement by Russian Federation, oil prices are off 1% as the lack of cooperation from Russian Federation dents sentiment in the energy complex, suggesting that the market is not buying the current plan by OPEC.

"We are entering an unprecedented period of uncertainty in oil markets", IEA Executive Director Fatih Birol said on Tuesday.

He added, "We have very thin production capacity left in the world, in a world which is becoming more risky".

The sharp drop in fuel prices following crude's dramatic fall from four-year highs last month may be allowing the Narendra Modi government to breathe easy through the ongoing state polls, but the reprieve may not last long enough to fuel its campaign for the general elections early next year.

From Nov-Jan past year, crude rallied 20%. The global benchmark fell as much as 7.6 percent to $61.71, the lowest level since December 2017.

Crude futures fell to fresh session lows after President Donald Trump issued a statement saying the United States stands by Saudi Arabia following the slaying last month of journalist and US resident Jamal Khashoggi by Saudi agents.

Brent crude futures were down $1.04 at $65.72 a barrel at 1447 GMT, having retreated from a session high of $67.64. "W$3 e believe oil is oversold and will likely bounce up from the current levels, as OPEC+ dials back production in December", Bank of America Merrill Lynch said in a note on Wednesday.

US investment bank Goldman Sachs said on Wednesday the renewed price collapse reflected "concerns over excess supply in 2019". With signs of economic and oil demand growth slowing, the market may be expecting an announcement of a sizeable output reduction in early December, and could be bitterly disappointed should OPEC fail to live up to this expectation.

Iranian crude oil importers in South Korea and Japan are said to be planning the resumption purchases from the sanctioned Persian producer beginning in January, after the USA granted the countries temporary waivers from sanctions.

But despite the additional rig count, Nigeria's crude oil production witnessed a decline in October, 2018 to 1.75 Million Barrel per day, mb/d from 1.77mb/d recorded in the preceding month.

Other reports by

Discuss This Article