Oil price falls below $60 over fears of supply glut

25 Novembre, 2018, 16:23 | Auteur: Auguste Feret
  • OIL tanker. file

The value of a barrel of oil has dropped by around 20 percent so far in November, in a seven-week streak of losses.

High global oil production compared to demand was the top reason for Friday's selling, while the outlook for a weakening world economy led investors to conclude that growth would not be strong enough to soak up the surplus.

But, so far, the prospect of the Middle East-dominated group orchestrating a fresh round of supply cuts has done little to prop up crude futures. U.S. light crude lost $4.03, or 7.4%, to touch a low of $50.60 a barrel, also the weakest since October 2017. WTI hit its weakest price since mid-October 2017 on Friday.

Brent crude oil dropped some $3.26/bbl in London Friday - or 5.2 percent - to $59.34/bbl. As a result, the benchmark S&P 500 stock index edged lower in light trading after the Thanksgiving holiday.

WTI has now lost 34 percent of its value from its peak on October 3 to the trough on Friday.

Brent for January settlement fell US$3.82, or 6.1 per cent, to US$58.78 a barrel at 11:08 a.m.in NY. "Like a big tax cut for America and the world", he said, adding that prices should go lower.

In contrast to US stocks, European equities rose, led by a rally in Italian stocks as the country's bond yields fell after a press report that EU Affairs Minister Paolo Savona is considering resigning over the government's decision to challenge European Union budget rules.

Saudi Energy Minister Khalid al Falih on Thursday said the kingdom's output this month would surpass October's production of 10.6 million barrels per day. Sources told Bloomberg News this week the Saudis are now pumping a record 10.8 million to 10.9 million bpd.

Crude collapsed into a bear market this month after the U.S. allowed some nations to continue buying Iranian supply.

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Meanwhile, U.S. crude production has reached 11.7 million bpd, according to preliminary weekly figures.

"Oil bears have re-asserted their authority", Tamas Varga of London-based PVM Oil said.

Donald Trump, president of the United states, had repeatedly expressed his interest in low oil prices, calling on the Organisation of Petroleum Exporting Countries (OPEC) to increase supply to cut prices.

Trump's opposition to higher oil prices is particularly important because he has so far refused to take action against Saudi Arabia over the murder of journalist Jamal Khashoggi.

However, on balance, analysts at the firm said in a research note published Friday that the chance of supply cuts were around "2-in-3". "In that scenario, Brent prices likely recover back into the $70s", Morgan Stanley commodities strategists Martijn Rats and Amy Sergeant wrote in a note to clients.

Opec has been trying to stabilise the market since November 2016, but these efforts have also come alongside a surge in production in non-member countries, namely the US, Russia and China, which risk flooding the market and damaging prices.

Supply cuts also put the OPEC and non-OPEC alliance on a potential collision course with the United States. Cartel officials observed the global oil prices have slumped some 20 percent this month alone, meaning additional policy steps could be necessary to prevent another massive oil bust.

About two dozen exporting nations began capping their output in 2017 in a bid to drain a global crude glut.

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