Oil prices fell nearly 1 percent on Friday as global supply increased and investors worried demand growth could slow, pressuring U.S. crude to its longest stretch of daily declines since 1984. Crude futures benchmarks have slid about 20 percent or more since peaking in early October.
Oil climbed the most in 2 1/2 weeks, halting an unprecedented decline, as Saudi Arabia pledged to curb output and urged allied crude producers to follow suit. “What a difference a month makes,” said Michael Tran, commodity strategist at RBC Capital Markets.
Futures in New York gained as much as 1.8% after entering bear-market territory last week. OPEC Secretary General Mohammad Barkindo on Monday warned that an international supply glut on par with the 2014 surplus that crushed oil markets is imminent.
“Market sentiment has shifted from the most bullish tone in years with many calling for $100 only weeks ago, to the weakest investor sentiment since the 2016 price trough.” Benchmark Brent crude LCOc1 futures fell 47 cents, or 0.7 percent, to settle at $70.18 a barrel.
During the session Brent fell below $70 a barrel for the first time since April, as much as 20 percent off four-year highs reached in October. Brent slumped about 3.6 percent for the week and more than 15 percent this quarter. U.S. crude fell for the 10th straight day, the longest such streak since July 1984, according to Refinitiv data.
The 500,000-bpd production cut, promised by the Saudis, probably is only about half the curtailment required to forestall a glut, according to the kingdom. U.S. West Texas Intermediate crude futures CLc1 declined 48 cents, or 0.8 percent, to settle at $60.19 a barrel.
The session low was an eight-month bottom at $59.26, down more than 22 percent from its October peak. That decline puts U.S. crude in “bear market” territory using a stock market definition. Hedge funds cut bullish wagers on U.S. crude in the latest week to the lowest level in more than a year, data showed, while speculators slashed bullish bets on Brent crude to the lowest since July 2017. [CFTC/].
“If we believe that Saudi Arabia will cut supply we’ll see what happens in December, but this will tighten up the market and should rally things up a bit,” said Bart Melek, head of global commodity strategy at TD Securities in Toronto.
Demand worries followed forecasts for slower economic growth in 2019, largely due to a U.S.-China trade war. [IEA/M]. On Friday, Chinese data showed producer inflation fell in October for the fourth straight month on cooling domestic demand and manufacturing activity.
The report sent global stocks into a tailspin. [MKTS/GLOB]. “I wouldn’t be too surprised to see crude head back closer to recent highs, maybe not to the October levels, but certainly off the recent lows.
Oil peaked in early October on the view that U.S. sanctions on Iran that came into force this week would drain global crude inventories and bring shortages in some regions. But other big producers have more than compensated 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. U.S. energy firms added oil rigs for a fourth week in the last five, bringing the total count to 886, the highest since March 2015, data showed on Friday.
The Saudis are taking the lead to counter a price slide of about 20% since early October, which reflected U.S. waivers that tempered the impact of sanctions on Iran, as well as signs of an emerging glut in America. Also, U.S. sanctions on Iran are unlikely to cut supply as much as expected.
Washington has granted exemptions to Iran’s biggest buyers. A South Korean delegation including oil buyers is expected to head to Iran next week to discuss resuming oil imports after a three-month halt, sources told Reuters.
West Texas Intermediate for December delivery advanced 73 cents to $60.92 per barrel at 10:43 a.m. on the New York Mercantile Exchange. China National Petroleum Corp said it was still taking oil from Iranian fields in which it has stakes.
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. Inventories in Cushing, Oklahoma, the delivery point for U.S. crude futures, have risen for seven straight weeks.
Total volume traded was 72% above the 100-day average. “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.”
Brent futures for January settlement rose 76 cents to $70.94 on the London-based ICE Futures Europe exchange. Still, a return to oil production cuts by OPEC and its allies next year cannot be ruled out, two OPEC sources said this week. A ministerial committee of some OPEC members and allies meets on Sunday in Abu Dhabi.
The global benchmark crude traded at a $9.98 premium to WTI for the same month. It’s all eyes on OPEC as U.S. oil prices fell for 10 consecutive days, wiping out any gains for the year.
Futures in New York slid 0.8 percent to settle at $60.19 a barrel on Friday, a day after falling into a bear market on concerns growing supplies will overwhelm the market, as the U.S. offered nations waivers to continue buying Iranian oil.
A meeting between Novak, Al-Falih and other producers on Sunday yielded no formal change in supply policy, but did acknowledge they may need “new strategies. The plunge will push OPEC and its allies into a corner as they gather in a highly-anticipated meeting this weekend that could yield a signal on future production cuts.
“The Iranian sanctions were supposed to be a game-changer in the market,” said Michael Loewen, a commodities strategist at Scotiabank in Toronto. Producers have been “attempting to pump as much oil as possible right now to soften the blow of those Iranian sanctions, yet Trump comes out and gives waivers.”
Crude’s slump from its early-October peak above $76 a barrel comes as U.S. production is at a record, OPEC output is at the highest since 2016, more Iranian crude might make it to market then previously thought and demand growth remains a concern. Oil chiefs from Venezuela and Oman indicated they may side with the Saudis on the issue of output cuts.