Global benchmark Brent oil loses more than 6%
Oil prices tumbled Tuesday, with the U.S. benchmark finishing at its lowest in over a year, as investor attention remained fixed on supply ahead of a key meeting of major oil producers early next month.
“The bulls are running for the barn and the bears are not in hibernation,” said James Williams, energy economist at WTRG Economics.
Among the factors contributing to the steep decline, October U.S. petroleum inventory stands above the five-year average and the decline in Iranian oil exports has been less than anticipated, said Williams. The market is also experiencing seasonally weak fall demand, he said.
“However, if the price is anywhere near today’s price” when members of the Organization of the Petroleum Exporting Countries meets on Dec. 6, “I expect OPEC to make cuts” to production, said Williams. “The lower the price, the higher the probability of a cut.”
Against that backdrop, January West Texas Intermediate crude CLF9, +1.65% dropped $3.77, or 6.6%, to settle at $53.43 a barrel on the New York Mercantile Exchange, the lowest front-month contract settlement since Oct. 26, 2017, according to Dow Jones Market Data.
Global benchmark January Brent LCOF9, +1.54% shed $4.26, or 6.4%, to $62.53 a barrel, with prices at their lowest settlement since February.
The energy complex also got swept up in another bout of “risk-off” jitters driving global markets sharply lower.
“The broader financial market complex was roiled by weakness in tech stocks and the seemingly hard-to-bridge rift between the U.S. and China, at least as far as trade is concerned,” said consulting firm JBC Energy in a note.
That adds to concerns for global thirst for oil at the same time that energy markets are trying to sort an oversupply situation. Groups, including OPEC, have cut their oil-demand growth outlook for this year and next.
President Donald Trump, meanwhile, said Tuesday the U.S. remains a “steadfast partner” with the Saudis, despite tensions linked to the killing of journalist Jamal Khashoggi. The comments were seen easing the odds of a disruption to the Saudi market.
“The undercurrent to all this, in my view, is that Trump support is conditional on no production cuts,” said Stewart Glickman, head of energy research at CFRA Research. But “I suspect if Saudi can marshal enough broad support across OPEC, cuts will occur anyway.”
Both WTI and Brent oil earlier this month lapsed into a bear market, defined as a decline of at least a 20%, after trading at nearly four-year highs in early October.
Oil prices found support Monday from news that the European Union backs a decision by the French government to sanction Iran nationals linked to a bomb plot in France.
And on Tuesday, the Trump administration sanctioned an Iranian company and three Russian companies in a move meant cut oil sales to Syria, according to a Bloomberg report.
But it was the decision by the Trump administration to grant waivers to major buyers of Iranian crude following the enactment of U.S. sanctions on the Islamic Republic that had fueled global oil market selling pressure. Sanctions had been expected to keep most Iranian oil off the market.
At the same time, leading producers U.S., Russia and Saudi Arabia are pumping crude at record levels, causing global supply to significantly outrun demand, a monthly update from the International Energy Agency showed last week.
OPEC and its allies signaled earlier this month that they could enact a joint production cut. Such a move would come just months after the group decided to ramp up production after more than a year of holding back output.
OPEC has reached an initial agreement to cut output at the meeting next month, but it hasn’t yet agreed on the amount, according to Reuters, which cited comments from United Arab Emirates OPEC Governor Ahmed al-Kaabi to the Al Bayan newspaper.
The American Petroleum Institute releases its weekly U.S. petroleum supply data late Tuesday. The Energy Information Administration, which will issue its own weekly figures Wednesday morning, has so far reported crude supply gains in each of the past eight weeks.
The U.S. natural-gas supply report will be released Wednesday at noon Eastern Time, a day earlier than usual because of Thursday’s Thanksgiving holiday.
December natural gas NGZ18, +2.14% fell 3.8% to $4.523 per million British thermal unit after a weather-influenced rally took prices up nearly 15% last week, hitting their highest in over four years.
December gasoline RBZ8, +1.49% fell 5.5% to $1.496 a gallon, while December heating oil HOZ8, +0.50% fell 4.6% to $1.99 a gallon.
