Oil plunges to new three-year low as glut fears grow
WASHINGTON, November 24, 2018
Oil notched its biggest weekly loss since the depths of the last price crash, as record Saudi output, pressure from US President Donald Trump and a global stock sell-off intensified crude’s freefall, reported Blomberg.
Futures slid below $60 in London on Friday and ended the week down about 12 per cent, the worst showing since January 2016.
Traders focused on the growing risks of a new glut of crude after Saudi Arabia’s oil minister said Thursday that production from the world’s largest exporter had climbed further this month.
Oil joined a swoon in equity markets nervous about international trade and a weakening economy, stated the report.
The S&P 500 Index fell to its lowest mark since May while European markets lost ground after a report showing a slowdown in Germany. Energy companies led declines, with shale drillers Concho Resources Inc. and Devon Energy Corp. each down more than 5 per cent.
“Crude’s getting shellacked,” said Kyle Cooper, director of research at energy consultant IAF Advisors in Houston. “The equities are giving a foreboding sign for overall economic growth. I think that’s what’s disturbing people.”
In the US, West Texas Intermediate oil prices slid toward $50 a barrel, the baseline at which many large shale explorers set their budget this year, RBC Capital Markets analyst Scott Hanold said in a note to clients.
Smaller producers planned on even more, predicating budgets on WTI prices 10 to 15 per cent higher, he wrote.
“Outside of a few better-positioned companies, demonstrating free cash flow will be challenging at current oil prices," stated Hanold.
The Saudis have signaled they will throttle back on production in December. But unless Opec and Russia can reach a new deal to constrain output in Vienna next month, analysts see the prospect of sustained oversupply in 2019, undoing the group’s success over the last two years to drain global inventories.
Trump, Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman will attend next week’s G20 meeting in Buenos Aires.
The Russian and Saudi energy ministers are also scheduled to travel to Argentina’s capital, according to people familiar with their plans.
Crude collapsed into a bear market this month after the US allowed some nations to continue buying Iranian supply. Trade tension between America and China is raising concerns over demand and Trump renewed a call for lower oil prices, said the Bloomberg report.
Those factors pushed up oil’s volatility this week to the highest since early 2016, it added.
