Oil slides below $70 as US crude enters ‘bear market’
Dollar close to 16-month high
LONDON, Nov 10, (RTRS): Oil prices fell to multi-month lows on Friday as global supply increased and investors worried about the impact on fuel demand of lower economic growth and trade disputes.
Benchmark Brent crude fell below $70 a barrel for the first time since early April, down more than 18 percent since reaching four-year highs at the beginning of October.
Brent dropped $1.52 to a low of $69.13 before recovering to around $69.55 by 1430 GMT, down 4.5 percent for the week and 16 percent this quarter.
US light crude fell for a 10th successive day, dropping under $60 a barrel to its lowest in eight months. The US crude contract hit a low of $59.28, down $1.39 and off more than 20 percent since its peak in October. That put it in “bear market” territory, borrowing a definition used in stock markets.
“Oil prices are being hit by the double whammy of rising supplies and demand concerns,” Interfax Europe analyst Abhishek Kumar said.
Oil peaked in October on concerns that US sanctions on Iran that came into force this week would deprive the oil market of substantial volumes of crude, draining inventories and bringing shortages in some regions.
But other big producers, such as Saudi Arabia, Russia and shale companies in the United States, have increased output steadily, more than compensating for lost Iranian barrels.
The United States, Russia and Saudi Arabia are pumping at or near record highs, producing more than 33 million barrels per day (bpd), a third of the world’s oil.
The US sanctions, meanwhile, are unlikely to cut supply as much as expected. Washington has granted exemptions to Iran’s biggest buyers, allowing them to buy limited amounts of oil for at least another six months.
Stakes
China National Petroleum Corp said it was still taking oil from Iranian fields in which it has stakes.
Washington has said it wants to force Iranian oil exports down to zero, but Bernstein Energy now expects “Iranian exports will average 1.4 million to 1.5 million bpd” during the exemption period, about half the volume in mid-2018.
“As OPEC exports continue to rise, inventories continue to build, which is putting downward pressure on oil prices,” Bernstein said. “A slowdown in the global economy remains the key downside risk to oil.”
A glut in the refining sector, where a wave of unsold gasoline has pulled profit margins into negative territory, may also lead to a slowdown in new crude orders as refiners scale back operations.
Meanwhile, US dollar rose toward a 16-month high against the euro on Friday as falling equity prices spurred a flight to quality and the US Federal Reserve affirmed its monetary tightening stance, citing the strong US economy. The S&P 500 fell more than 1 percent, with shares of large technology, industrial and material companies taking a hit as weak Chinese data and a slide in oil prices raised concerns about global growth. Against the backdrop of a multi-billion dollar trade dispute between Washington and Beijing, Chinese data showed producer inflation fell for the fourth straight month in October on cooling domestic demand and manufacturing activity, while car sales fell for a fourth consecutive month. “(Chinese officials) look distressed - they don’t have the kind of control we’re used to assuming authorities driving an economy at 6-7 percent a year do. That’s putting pressure on the Aussie, Kiwi and feeding into a strong dollar and yen,” said David Gilmore, partner at FX Analytics. Equities also fell after the Fed on Thursday reaffirmed its plans to hike interest rates in December and beyond.
Outcome
The greenback had fallen broadly following US congressional elections on Tuesday on expectations that the outcome would make further fiscal stimulus measures unlikely. But the currency bounced back, and on Friday returned to out performing most major currencies, underpinned by the robust US economy and rising interest rates. “We’re wary of selling the dollar too soon, because the Fed is still hiking rates into a tightening labor market and trade tensions haven’t gone away,” said Kit Juckes, chief FX Strategist at Societe Generale. The dollar has benefited as rising US-China trade tensions boosted demand for safe-haven investments, pushing the offshore Chinese yuan toward 7 per dollar and the euro toward $1.13 . In Japan, where interest rates are expected to stay extremely low, the yen is near a five-week low against the dollar, last at 113.75 yen, and has fallen 1.6 percent over the last 10 trading sessions. The dollar index , which tracks the currency against six major peers, traded as high as 97.01 on Friday, not far from a 16-month peak of 97.2 touched on Oct 31. The euro last traded at $1.133, down 0.26 percent. Sterling extended its losses on Friday after Jo Johnson, a junior transport minister, resigned from UK Prime Minister Theresa May’s government, citing her “delusional” Brexit plans,and called for another referendum on Britain’s EU membership.The currency was down 0.54 percent at $1.297 from around$1.304 before the announcement from Johnson. On Friday afternoon the Mexican peso strengthened by 0.3 percent to 20.13 versus the dollar after the country’s President-elect, Lopez Obrador, said he would make no changes to the legal framework of the financial sector.