Oil prices turned negative amid a sell-off in the U.S stock market on Monday, with U.S. crude posting an 11th straight day of losses, its longest longest losing streak on record. Crude’s recent sell-off is a grim reminder that OPEC’s management of the oil market isn’t foolproof.
Crude futures looked set to break the streak earlier on Monday after Saudi energy minister Khalid al Falih said OPEC and its allies may need to cut crude production by about 1 million barrels per day to prevent the market from swinging into oversupply.
Global marker Brent has fallen as much as 16%, or nearly $10/bbl, following the cartel’s announcement that it would trim production by 1.2 MMbpd. On Sunday, Falih said the kingdom’s shipments would fall by 500,000 bpd in December.
But the recent strong correlation between stocks and crude futures reasserted itself on Monday as the Dow Jones Industrial Average fell 600 points. “The stock market was pulling at the oil complex all day.
We should have gotten more of rally at that Saudi commentary over the weekend,” said John Kilduff, founding partner at energy hedge fund Again Capital. U.S.
West Texas Intermediate crude settled 26 cents lower at $59.93 on Monday, falling deeper into bear market territory. The contract has never fallen for 11 straight days since it began trading in New York more than three decades ago.
The losses continued after the settlement, with WTI falling more than 2 percent and dipping below $59 a barrel for the first time since February. Brent crude, the international benchmark for oil prices, settled 6 cents lower at $70.12 on Monday.
Brent briefly dipped below $69 to its lowest level since April in post-settlement trade. Crude futures have pulled back sharply during the last five weeks, as oil got swept up in October’s market sell-off that saw investors shed risk assets.
The final cut, in December 2008, saw oil sink as much as 18%. Rising oil supplies from the United States, OPEC and Russia and forecasts for weaker-than-expected demand growth have kept pressure on the market.
“It does look like demand is starting to come off a bit,” BP CEO Bob Dudley told CNBC at the ADIPEC oil and gas conference in Abu Dhabi on Monday. Currency weakness in emerging markets has significantly increased the cost of crude in those countries, raising questions about future demand.
“The world’s appetite for oil now looks set to grow by about 1.3 million bpd, compared with BP’s earlier expectations for 1.4 million to 1.5 million bpd of growth”, Dudley said.
Those factors are now forcing OPEC, Russia and several other exporting nations to consider a fresh round of supply cuts. The alliance of roughly two dozen producers has cut its output since January 2017 in order to drain a global crude glut.
The group agreed in June to restore some of that production to rein in rising commodity prices. However, a committee tasked with monitoring the group’s production agreement concluded on Sunday that oil supplies are growing faster than demand requires, threatening to leave the market oversupplied.
The Joint Ministerial Monitoring Committee said the current oil market situation “may require new strategies to balance the market,” after warning last month that the group may have to reverse course and begin cutting output once again.
Compounding concerns about demand, the U.S. dollar hit a 16-month peak on Monday. A stronger greenback makes dollar-denominated oil more expensive to holders of other currencies.. Output limits implemented in 2002, 2004, 2006 and 2007 were largely effective, despite signs of an early sell-off in 2006.