Oil sinks for 2nd day on fading hopes of output deal
Oil slumped for the second straight day, with US crude ending 5.5% lower on Tuesday, as hopes of a deal to curb one of the worst supply gluts in history continued to fade amid concerns that mild winter weather in the US will dampen demand.
The oil markets erased most of last week’s four-day rally, when it soared almost 20% from the lows touched in mid-January, after Russia’s Energy Minister said the Organization of the Petroleum Exporting Countries ( OPEC) kingpin Saudi Arabia suggested a production cut.
Hopes dimmed this week as no deal has emerged and talks between Russia’s energy minister and Venezuela’s oil minister on Monday failed to result in any clear plan to reduce output.
US investment bank Goldman Sachs said it was “highly unlikely” OPEC would cooperate with Russia to cut output, saying the move would also be self- defeating as stronger prices would bring previously shelved production back to the market.
“As they (producers) continue to disappoint, we’re going to trade lower, until the market forces them to do something and I think that’s at a much lower price than here,” said analyst John Kilduff, partner at Again Capital LLC in New York.
Brent crude closed down $1.52, or 4.4%, at $32.72 a barrel. It fell as much as 5.9% to $32.23 in the session.
US West Texas Intermediate crude ( WTI) settled 5.5%, or $1.74 lower at $29.88 per barrel, after falling as low as $29.81. The contract fell further in postsettlement trade to $29.57 after data from the American Petroleum Institute, an industry group, showed 3.8-million-barrel build in US crude stocks last week.
US government energy data are due on Wednesday.
With forecasters projecting the weather in the United States will moderate during the last eight weeks of the November-March winter heating season, US heating oil futures were down 2% and gasoline 7% lower.
The sell-off in gasoline futures deepened to more than 9% in post-settlement trade after API data showed gasoline inventories soared 6.6 million barrels last week.
Oil stockpiles have been on the rise even outside the United States, with Russian output hitting a post- Soviet high in January.
Crude prices are in danger of returning to the $20s unless there was concrete reaction on the supply side, said Thomas Saal, analyst at INTL FC Stone in Miami, Florida.
Economic data that are due later in the week — including US nonfarm payroll, unemployment figures and producer prices from the euro zone — could pressure oil prices further, Again Capital’s Mr. Kilduff said. “I think it’s in the cards to re- test the lows from mid-January,” he said, referring to Brent’s low of $27.10 and WTI’s $26.19.
Still, Citi called a bottom on prices on Tuesday, saying that even while a deal may not materialize, the current lows will be short-lived. —