Glut in crude lowers price to $55 per barrel
OIL BRIEFLY fell below $55 (R785) a barrel in London yesterday for the first time in more than a year as a US Federal Reserve interest-rate hike stoked demand fears just as markets contend with excess supply.
Brent futures slid as much as 4.5 percent to the lowest since September 2017. Traders are avoiding risk assets as chairperson Jerome Powell failed to quell concerns that the Fed policy would choke global growth, driving down equities in Europe and Asia.
Crude inventories at a key US storage hub rose to the highest level since January, adding to speculation that Opec’s output cuts will be undermined by shale supplies. Crude’s set for its worst quarterly drop in four years despite an accord between Opec and its allies to cut 1.2 million barrels a day of production from January.
While Saudi Arabia energy minister Khalid Al-Falih said he was certain the deal would be extended in April, the assurance coming even before the pact had gone into effect, only highlighted the prevailing anxiety in the market. Meanwhile, global investors are concerned the Fed isn’t finished raising rates.
“Some of the elements in oil’s bullish story have fallen apart,” said Giovanni Staunovo, an analyst at UBS Group in Zurich. “US production is higher than expected, concerns over spare capacity didn’t materialise and the Opec+ cuts don’t start until January. The correction in equities triggered by the Fed didn’t help either.”
Brent for February settlement dropped as much as $2.60 to $54.64 a barrel on London’s ICE Futures Europe exchange and traded at $55.65 a barrel at 1.59pm local time. The contract rose 1.7 percent on Wednesday. The global benchmark crude traded at a $9.06 premium to West Texas Intermediate (WTI). WTI for February delivery lost as much as $2.35 to $45.82 a barrel on the New York Mercantile Exchange. The January contract expired on Wednesday after gaining 96 cents to $47.20. Total volume traded Thursday was about 38 percent above the 100-day average.
Stockpiles at Cushing rose for a fourth consecutive week, increasing by 1.09 million barrels last week, Energy Information Administration data showed on Wednesday. While nationwide inventories shrank by 497 000 barrels, the drop was smaller than a 2.5 million-barrel decrease expected.
On Wednesday, Al-Falih said the current price dip wasn’t based on supply and demand of oil, but stemmed in part from factors including geopolitics, US interest rates, the strength of the US currency and investor speculation. Still, he added that Opec would “need more time” for production curbs to balance the market.
“It’s a disaster for Opec,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “It will definitely take time for fundamentals to improve.”
To ease concerns, the Opec+ group will give greater clarity on their strategy to stabilise oil markets today by publishing a list of production cuts agreed by each country, according to people familiar with the matter.
US policy makers scaled back the number of rate increases they expect next year to two from three in September. That’s still more than investors expect. Powell repeatedly called the outlook for next year “positive”, though the central bank lowered the forecast for growth in 2019 to 2.3 percent from 2.5 percent in September. I Bloomberg