Oil price skids on oversupply fears and weak world economy

London, Dec 18: World oil prices tumbled Tuesday to strike their lowest levels in more than a year, hit by fears over the outlook for the global economy and doubts over producers' resolve to cut output.

Reports that non-OPEC producers Russia and the United States were pumping oil at record levels wrong-footed many investors who not long ago had bet on a sharply rising market.

Fears that Iran sanctions reimposed by Washington would cause a drastic fall in output, and a corresponding surge in prices, underpinned oil at the start of the quarter, said David Cheetham, chief market analyst at xtb.

“But these concerns now look badly misplaced and it seems that a lot of people were caught on the wrong side in looking for $100 a barrel crude once more,” he said.

On Tuesday, the main oil contracts were worth only around half that.

– 'Broader market misery' –

Brent crude tumbled as low as $56.97 in the late European afternoon, a drop of over four percent on the day, while US benchmark WTI plummeted well over five percent to a $47.32 low.

Such lows were last seen in the autumn in 2017.

On Wall Street, the Dow saw a modest rebound after Monday's rout, but stock markets remained subdued in Europe.

“Stocks have not been the only victims of broader market misery this festive season,” said Oanda analyst Craig Erlam.

“Oil tumbled… as equities plunged into the red as investors continue to view 2019 as a challenging year for global growth.”

There are also questions about the impact of a recently promised output cut by OPEC and other top producers including Russia.

“OPEC may have come to an agreement with its allies to cut production next year and rebalance markets… but traders are clearly not convinced enough will be done,” predicted Erlam.

– 'Intriguing game theory' –

Analysts also cited reports saying that Russia was pumping oil at record levels “which raises concerns surrounding their intentions to follow through on their promises to cut output alongside OPEC members”, said Cheetham at xtb.

“The organisation often suffers from an intriguing aspect of game theory where all countries want to see production cut to support the oil price, but rarely does a country want to cut themselves for loss of revenues,” he said.

Crude prices have fallen about a third from four-year highs touched at the start of October.

Asian equities posted sharp losses earlier in the wake of Monday's Wall Street selloff, as investors also awaited the US Federal Reserve's interest rate decision due later this week.

The British stock market meanwhile remained beset with worries over the nature of the nation's looming exit from the European Union next March.



Posted on: 2018-12-18T23:58:00+05:00