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Oil set for weekly slump on concern about economy and oversupply

Dec 21 2018 12:46
Grant Smith and Heesu Lee, Bloomberg

Oil was poised for a weekly loss on concerns that weakening economic growth and surging US supply will lead to a surplus next year, overwhelming OPEC’s efforts to stabilise the market.

Futures fell 0.6% in New York, headed for the biggest quarterly drop in four years. Crude joined a sell-off in wider financial markets after an interest rate increase by the Federal Reserve and the threat of a US government shutdown added to economic uncertainty.

Meanwhile, investors remain skeptical that cuts agreed by OPEC and its allies are sufficient to avert a looming oil glut.

Crude is heading for its worst quarterly loss in four years on fears the relentless expansion in American shale will undermine efforts by OPEC and its partners to balance the market. Concerns over growth persist even as Fed chairperson Jerome Powell promised to be more cautious on raising rates next year, while a closely watched speech by Chinese President Xi Jinping offered no new reforms to stimulate the world’s second-largest economy.

"It’s a bears’ world," said Stephen Brennock, an analyst at PVM Oil Associates. "At the heart of this subdued backdrop is a bearish bias on the supply side,” while at the same time, “oil demand prospects have dimmed as storm clouds gather over the global economy."

West Texas Intermediate for February delivery was at $45.60 a barrel on the New York Mercantile Exchange, down 28 cents, at 11:20. The US benchmark was poised for a weekly loss of 11% - the biggest in almost three years. The contract fell 4.8% to close at $45.88 on Thursday. Total volume traded was about 18% above the 100-day average.

Brent for February settlement slipped 48 cents to $53.87 a barrel on London’s ICE Futures Europe exchange. The contract fell 5.1% to $54.35 on Thursday, closing below $55 for the first time in more than a year. Prices are down 9.9% for the week. The global benchmark crude traded at an $8.19 premium to WTI.

Oil’s slump persisted this week on broader market turmoil spurred by a plunge in global equities after the US central bank lowered the forecast for 2019 economic growth to 2.3% from 2.5% in September. While policy makers scaled back the number of rate increases they see next year to two, from three that were anticipated in September, that’s still more than investors expected.

Meanwhile, President Donald Trump insisted on funding a wall or other barrier along the southern US border, refusing to sign a stopgap spending bill that would have averted a government shutdown by midnight on Friday.

OPEC and its allies will give greater clarity on their strategy to stabilise oil markets on Friday by publishing a list of production cuts agreed by each country, according to people familiar with the matter. The figures to be published are in line with expectations, showing that participating nations will curb output by about 3%, mostly from October levels, delegates said.

commodities  |  markets  |  oil


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