US oil en­ters bear mar­ket on ris­ing in­ven­to­ries

The Star Malaysia - StarBiz - - The Wall Street Journal - By DAN MOLINSKI

US oil prices slid for a ninth straight ses­sion Thurs­day, hit­ting an eight-month low and en­ter­ing a bear mar­ket amid wor­ries over ris­ing global out­put and signs of de­te­ri­o­rat­ing de­mand.

Light, sweet crude for De­cem­ber de­liv­ery ended 1.6% lower at US$60.67 a bar­rel on the New York Mer­can­tile Ex­change, putting the front-month con­tract about 21% below its re­cent high. Brent crude, the global bench­mark, fell 2% to US$70.65 a bar­rel, roughly 18% below its peak. Bear mar­kets are gen­er­ally de­fined as a 20% de­cline from a mar­ket peak.

The US bench­mark had risen to a nearly four-year high of US$76.41 a bar­rel just over one month ago, on Oct 3. But since then it is fallen sharply due to ris­ing pro­duc­tion, a soft­en­ing of US oil sanc­tions on Iran and trade ten­sions that are spark­ing wor­ries of slower global eco­nomic growth that could in turn re­duce de­mand for oil.

The oil sell­ing in­ten­si­fied over the past two days af­ter a re­port from the En­ergy In­for­ma­tion Ad­min­is­tra­tion showed US oil in­ven­to­ries have risen for seven straight weeks to a five-month high of 432 mil­lion bar­rels. The re­port also showed US oil pro­duc­tion in­creased to a record 11.6 mil­lion bar­rels a day, fu­elled largely by pro­duc­tion in shale re­gions such as West Texas and North Dakota.

“The crude builds cer­tainly didn’t help prices,” said Mark Wag­goner at Ex­cel Fu­tures. “But be­hind these num­bers, and what many reg­u­lar peo­ple don’t know – but oil traders cer­tainly do – was the United States just be­came the world’s largest crudeoil pro­ducer a cou­ple of weeks ago, barely squeak­ing by Rus­sia. That’s huge.”

A de­ci­sion last week by the Trump ad­min­is­tra­tion to is­sue waivers, or ex­cep­tions, to its oil sanc­tions against Iran added to pres­sure on oil prices. The United States al­lowed eight coun­tries to con­tinue to buy Ira­nian crude. That essen­tially ended any fears of a sanc- tions-cre­ated sup­ply squeeze, at least for now.

“Even be­fore a larger num­ber of Iran sanc­tions waivers was an­nounced on Fri­day, mar­ket sen­ti­ment had soured on crude,” said an­a­lysts at En­ergy As­pects in a re­search note.

“Against a back­drop of eco­nomic un­cer­tainty be­cause of US-China trade ten­sions, longs,” or in­vestors bet­ting on higher prices, “have given up.”

Hedge funds and other spec­u­la­tive in­vestors have been ditch­ing bullish oil wa­gers. Bullish bets on US crude out­num­bered bear­ish bets 4-1 as of Oct 30, which is far lower than the 26-1 ra­tio in early July, ac­cord­ing to Com­mod­ity Fu­tures Trad­ing Com­mis­sion data.

The fur­ther de­cline in prices this week in­creases the im­por­tance of a meet­ing Sun­day in Abu Dhabi among mem­bers of the Or­gan­i­sa­tion of the Pe­tro­leum Ex­port­ing Coun­tries, as many ex­pect the group will con­sider pro­duc­tion cuts as a way to boost global oil prices.

“In view of the lat­est price slump and the over­sup­ply that looks set to ma­te­ri­alise next year, Opec is think­ing about cut­ting back oil pro­duc­tion,” Com­merzbank an­a­lysts said in a note.

Rus­sia, along with Opec na­tions led by Saudi Ara­bia, has been pump­ing more oil since the sum­mer to off­set the loss of Ira­nian bar­rels, which now looks likely to be smaller than an­tic­i­pated due to waivers granted to some buy­ers.

Fall­ing crude prices also re­flect a weaker de­mand out­look.

The In­ter­na­tional Mon­e­tary Fund low­ered its tar­gets for global eco­nomic growth in 2019, cit­ing the US-China trade dis­pute as one fac­tor in the fore­cast cut. About a week later, the In­ter­na­tional En­ergy Agency (IEA) low­ered its oil de­mand-growth fore­casts for this year and next. The IEA cited higher oil prices as a fac­tor in its de­ci­sion.

Among re­fined prod­ucts, gaso­line fu­tures for De­cem­ber de­liv­ery fell 0.2% to US$1.6443 a gal­lon. Diesel fu­tures fell 3.1% to US$2.1683 a gal­lon.

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