Crude spirals to 17-month low amid global economic concerns
NEW YORK (Bloomberg) -- Crude dropped to the lowest since July 2017 as concerns over a weaker global economy and turbulence in Washington overshadowed signals from OPEC that it may deepen output cuts.
Futures declined as much as 3.3% in New York as U.S. stocks tumbled to the lowest in more than a year, with investors assessing the threat to the economy from a government shutdown. In the oil market, traders are skeptical that OPEC’s output cuts will be enough to balance supply and demand. The U.S. benchmark is down about 16% since the producer group announced the agreement.
“As stocks get taken down and there is nervousness across financial markets, it’s just undercutting prices here,” said John Kilduff, a partner at New York-based hedge fund Again Capital LLC. "The demand outlook continues to be called into question."
The U.S. benchmark crude is on track for a 13% decline this month. OPEC agreed to cut output along with allies at a meeting earlier this month, and the U.A.E.’s energy minister signaled additional curbs could be discussed. Yet, crude’s descent has deepened as investors doubt the reductions will be sufficient to dent supply levels, with U.S. crude output still above 11 MMbpd on a weekly basis.
At the same time, an ongoing trade war between the U.S. and China and the Federal Reserve’s rate policy are causing concerns over global economic growth. The S&P 500 Index sank 1.8 percent, with its energy index shedding 3.2%. The declines were led by Hess Corp., which lost 8.4%, the most in almost three years, after Venezuelan forces temporarily halted ships working at a formation Hess and Exxon Mobil Corp. are developing offshore Guyana.
“The main input over the weekend has been the continued intervention by OPEC members,” said Olivier Jakob, managing director at Petromatrix GmbH. “For now, those statements are ignored by the market because we are in this bearish cycle.”
West Texas Intermediate for February delivery fell $1.27/bbl to $44.32/bbl at 12:07 p.m. on the New York Mercantile Exchange after earlier falling to as low as $44.10/bbl. Total volume traded Monday was about 42% below the 100-day average ahead of the Christmas holiday Tuesday. WTI futures are down about 42% from an early-October high near $77/bbl.
Brent for February settlement dipped $1.36 to $52.46/bbl on London’s ICE Futures Europe exchange. The global benchmark crude traded at an $8.12 premium to WTI.
Suhail Al Mazrouei, the U.A.E.’s energy minister, said that OPEC has the option to hold an extraordinary meeting to decide on more output cuts if the current one isn’t enough. At a press briefing in Kuwait, ministers from Iraq, the U.A.E. and Algeria took turns repeating the message that OPEC will deliver its production curbs and continue to work with its allies.
As for OPEC’s cuts, “they have to follow through on their rhetoric in a significant way” in order for the price decline to stop, Kilduff said.
