Oil prices slip amid broad market sell-off that outweighs expected OPEC cuts

Virginia Carson
November 21, 2018

Oil recovered from a one-year low as industry data showing a drop in US crude inventories allayed some of the concern that a new surplus is amassing in global markets. The worldwide benchmark fell as much as 7.6 per cent to $61.71, the lowest since December 2017.

Oil prices continued its descent with WTI and Brent crude losing as much as 6% in yesterday's session.

Brent for January settlement dropped US$4.26 to US$62.53 a barrel on the London-based ICE Futures Europe exchange, the lowest since December.

Tuesday's drop extended a slide that has been largely unimpeded since early October.

Andrew Lipow, president of Lipow Oil Associates, said: 'The next fear is that as the equities fall as a reflection of slowing economic growth, that's going to depress any growth in oil demand'.

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US West Texas Intermediate (WTI) crude futures ended the session down US$3.77, or 6.6 per cent, at US$53.43 per barrel.

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 US sanctions recently went into effect.

Oil halted a slide near $54 a barrel as investors weighed industry data that showed United States crude inventories unexpectedly fell last week against doubts over Opec's plans to cut output.

According to Credit Suisse, prior to oil's selloff in early October, macro/discretionary funds and CTAs held a net long position that ranked in the top decile over the past five years.

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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Official government data is due Wednesday morning.

Record crude imports by India of nearly 5 million barrels per day (bpd) also supported prices, traders said.

With output surging and the demand outlook deteriorating, the Organization of the Petroleum Exporting Countries (OPEC) is pushing for a supply cut of between 1 million and 1.4 million bpd to prevent a repeat of the 2014 glut. With OPEC and its allies scheduled to meet in Vienna early December to discuss output plans, the International Energy Agency warned this week that cutting supplies may have some negative implications.

Portfolio managers have sold the equivalent of 553 million barrels of crude and fuels in the last seven weeks, the largest reduction over a comparable period since at least 2013.

The losses were said to be a direct reaction to the S&P 500 index on Tuesday hitting a three-week low, as well as the slump in global stock markets over the past two months; also, news that USA president Donald Trump said his country would remain a partner of Saudi Arabia even though "it could very well be" that Saudi crown prince Mohammed bin Salman had knowledge of the killing of Jamal Khashoggi eased concerns about potential oil supply disruptions.

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