Crude slumps nearly 8 pct despite ‘talk’ of output cut

Pound strengthens

BOSTON, Nov 24, (RTRS): Oil prices slumped up to nearly 8 percent to the lowest in more than a year on Friday, posting the seventh consecutive weekly loss, amid intensifying fears of a supply glut even as major producers consider cutting output.

Oil supply, led by US producers, is growing faster than demand and to prevent a build-up of unused fuel such as the one that emerged in 2015, the Organization of the Petroleum Exporting Countries is expected to start trimming output after a meeting on Dec 6.

But this has done little so far to prop up prices, which have dropped more than 20 percent so far in November, in a seven-week streak of losses. Prices were on course for their biggest one-month decline since late 2014.

A trade war between the world’s two biggest economies and oil consumers, the United States and China, has weighed upon the market.

“The market is pricing in an economic slowdown - they are anticipating that the Chinese trade talks are not going to go well,” said Phil Flynn, an analyst at Price Futures Group in Chicago, referring to expected talks next week between US President Donald Trump and his Chinese counterpart Xi Jinping at the G20 summit in Buenos Aires.

“The market doesn’t believe that OPEC is going to be able to act swiftly enough to offset the coming slowdown in demand,” Flynn said.

Brent crude futures settled down $3.80 a barrel, or 6.1 percent at $58.80. During the session, the benchmark dropped to $58.41, the lowest since October 2017.

Weakest

US West Texas Intermediate crude (WTI) lost $4.21, or 7.7 percent, to trade at $50.42, also the weakest since October 2017. In post-settlement trade, the contract continued to fall.

For the week, Brent fell 11.3 percent and WTI posted a 10.8 percent decline, the largest oneweek drop since January 2016.

Market fears over weak demand intensified after China reported its lowest gasoline exports in more than a year amid a glut of the fuel in Asia and globally.

Stockpiles of gasoline have surged across Asia, with inventories in Singapore, the regional refining hub, rising to a three-month high while Japanese stockpiles also climbed last week. Inventories in the United States are about 7 percent higher than a year ago.

Crude production has soared as well this year. The International Energy Agency expects nonOPEC output alone to rise by 2.3 million barrels per day (bpd) this year while demand next year was expected to grow 1.3 million bpd.

Adjusting to lower demand, top crude exporter Saudi Arabia said on Thursday that it may reduce supply as it pushes OPEC to agree to a joint output cut of 1.4 million bpd.

However, Trump has made it clear that he does not want oil prices to rise and many analysts think Saudi Arabia is coming under US pressure to resist calls from other OPEC members for lower crude output.

If OPEC decides to cut production at its meeting next month, oil prices could recover, analysts say.

“We expect that OPEC will manage the market in 2019 and assess the probability of an agreement to reduce production at around 2-in-3. In that scenario, Brent prices likely recover back into the $70s,” Morgan Stanley commodities strategists Martijn Rats and Amy Sergeant wrote in a note to clients.

Production

If OPEC does not trim production, prices could head much lower, potentially depreciating toward $50 a barrel, argues Lukman Otunuga, Research Analyst at FXTM.

Meanwhile in forex market, sterling jumped to a one-week high on Thursday after Britain and the European union agreed a draft text setting out their postBrexit ties that could be endorsed by EU leaders at a summit this weekend.

The pound rose as much as one percent versus the dollar after the text was sent to EU governments stating that both parties would have “a trading relationship on goods that is as close as possible”.

Britain is due to leave the EU on March 29, 2019 and diplomats are trying to ensure that both a legallybinding text governing Britain’s withdrawal and the separate declaration of intent on future relations will be ready for EU leaders to rubber-stamp at a summit on Sunday.

“The pound is pushing higher on short covering,” said Neil Jones, head of hedge fund FX sales at Mizuho in London.

“The latest Brexit headlines are encouraging demand and there is probably some further upside right now,” he added.

Prime Minister Theresa May will return to Brussels on Saturday where all EU leaders are due to convene to approve the outline of their future relationship.

Brexit negotiations and political uncertainty in Britain remain the key drivers for the pound, and many analysts are cautious about its prospects.

“It won’t take long before we refocus on the challenge facing the Prime Minister in getting House of Commons support for her Brexit deal,” said Societe Generale strategist Kit Juckes.

The pound was up 0.8 percent at $1.2873 at 1650 GMT, its highest since a rally last week. It also strengthened 0.6 percent against the euro to 88.60 pence