Oil prices rise after 6% plunge, but market on edge

21 November, 2018, 15:13 | Author: Sally Reid
  • Oil falls after Russia preaches patience rather than production cuts

Crude oil prices were lower Monday morning at the start of a holiday-shortened week that will see reduced volume as traders and investors tested recent lows, and also as the front-month WTI contract was set to move January.

Fund managers cut their bullish exposure to crude futures and options to the lowest since around mid-2017 this month.

West Texas Intermediate for January delivery sank $3.98 to $53.22 a barrel on the New York Mercantile Exchange at 13:38 local time. The global benchmark fell as much as 7.6 per cent to US$61.71 during the session, the lowest since December 2017.

Tuesday's drop extended a slide that has been largely unimpeded since early October. WTI prices are more 30 per cent lower from near four-year peaks hit in early October, weighed down by surging supply and the selloff in risk assets worldwide. The global benchmark crude traded at a $9.11 premium to WTI for the same month.

Further dragging on the oil outlook, OPEC and other forecasters have signaled that the global oil market could produce a surplus in 2019 on slowing demand, despite a dip in Iranian oil exports after USA sanctions recently went into effect.

Traders see further downside risk to oil prices from growing USA shale production and a deteriorating economic outlook.

Amid the uncertainty, financial traders have become wary of oil markets, seeing further downside risk to prices from the growth in US shale production as well as the deteriorating economic outlook.

Oil prices plummeted on Tuesday, as U.S. President Donald Trump reaffirmed Saudi Arabia as "a great ally" and signaled it won't punish Saudi crown prince over journalist Jamal Khashoggi's killing.

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"The main trend remains bearish as investors no longer believe in a risk of supply tightness for crude", ActivTrades chief analyst Carlo Alberto De Casa said.

Meanwhile, production is at or close to record highs in the US, Russia and Saudi Arabia.

US crude stockpiles have grown for eight straight weeks, and data last week showed inventories swelled by the most in more than a year, weighing on the market.

"While the news that OPEC+ said it would cut 1.4 million barrels of oil per day from production, it's looking likely that the cuts will have to be deeper in order to stabilise the price".

The Organization of the Petroleum Exporting Countries is pushing for a supply cut of 1 million bpd to 1.4 million bpd when it meets on December 6.

Russian Energy Minister Alexander Novak said Monday that the country and its OPEC allies need to watch the oil market in the coming weeks before making any decisions to reduce output.

If suppliers produce more oil than is needed, they are forced to cut their costs.

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



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