Oil struggles to find footing after 7% fall

15 November, 2018, 18:55 | Author: Frank Williams
  • Will Gas Prices Go Up? Saudi Arabia to Cut Production

Now, we've spoken many times before about the numerous reasons why crude prices can plunge: artificial manipulation from short sellers and institutional monkeyshines, geopolitical tensions, distortions in supply and demand, even outright oversupply - we've seen it all before.

United States futures closed down 7.1 per cent for a record 12th straight decline and the lowest since November 2017.

Global benchmark Brent crude oil futures were up 51 cents at $65.08 per barrel by 2:29 p.m ET.

Oil prices started retreating on Tuesday after US President Donald Trump flayed Saudi Arabia's call for production cuts and pressed oil cartel OPEC for lower prices based on supply. Brent has lost 25 per cent since peaking at a four-year high in early October. He wouldn't commit to cutting output to help support prices, as some OPEC members have urged, earning them criticism from Trump. Yet its effect on prices is likely to be excessive amid heightened volatility resulting from two new reports with a pessimistic outlook for global demand, from the International Energy Agency and OPEC.

"Crude oil futures succumbed to overwhelmingly bearish pressure amidst ... weaker market fundamentals", said Benjamin Lu, analyst at brokerage Phillip Futures in Singapore. Brent crude, used to price global oils, dropped to $65.17 a barrel.

Why are oil prices falling?

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In August, the price of Brent crude oil has exceeded $75 per barrel.

"The market now increasingly looks concerned about the prospect of too much supply", said Norbert Ruecker, head of macro and commodity research at Swiss bank Julius Baer.

Brent Crude is not down more than 20 percent from its recent high, officially putting it in bear market territory.

Saudi Energy Minister Khalid al-Falih said on Monday the Organization of the Petroleum Exporting Countries agreed there was a need to cut oil supply next year by around 1 million barrels per day (bpd) from October levels to prevent oversupply.

Moreover, financial firms have been hedging the risk incurred by selling put options to oil producers, generating added downward pressure as prices fall toward option strikes, Goldman Sachs said in a note. One aspect that might be in play is the amount of Non-Opec oil production with U.S. shale production increasing to record levels for next year.

The U.S. has meanwhile allowed some of its allies - Greece, India, Italy, Japan, South Korea, Taiwan and Turkey - as well as rival China to continue to purchase Iranian oil despite re-imposed sanctions, as long as they work to reduce their imports to zero.



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