Oil dives on fears of glut, global economic slowdown

Oil prices are on track for a third straight monthly decline despite efforts by Opec, Russia and other major exporters to halt the slide.
Oil prices are on track for a third straight monthly decline despite efforts by Opec, Russia and other major exporters to halt the slide.PHOTO: REUTERS

NEW YORK (REUTERS) – Oil prices tumbled on Tuesday (Dec 18) after reports of swelling inventories and forecasts of record US and Russian output hitting a market that may see weaker demand if global growth deteriorates as many expect.

US crude oil fell US$2.22, or 4.4 per cent to trade at US$47.64 a barrel by 10.57am EST, its weakest since September 2017.

Global benchmark Brent lost US$1.93, or 3 per cent to trade at US$57.68 a barrel after earlier dropping to US$57.20, a 14-month low.

World stock markets inched higher on Tuesday as investors looked ahead to whether the US Federal Reserve will be able to raise interest rates much further. Equity markets have had steep declines over the last two months.

Investor confidence is deteriorating, with more fund managers expecting global growth to weaken over the next 12 months, the worst outlook in a decade, Bank of America Merrill Lynch’s December investor survey showed.

“There was a flood of supply slide news yesterday which, in combination with the demand destruction that the stock market slide implied, got us below US$50 (a barrel for US crude), and that gave us a strong sell signal,” said Bob Yawger, director of futures with Mizuho in New York.

Britain’s largest oilfield restarted, increasing supply, the US government said output from shale would top 8 million barrels per day this year, and data suggested US crude inventories would rise this week.

Both oil benchmarks have shed more than 30 per cent since early October due to swelling global inventories. Volumes were low on Tuesday heading into the holiday season, and ahead of expiry for the front-month US crude futures contract.

Japan’s Nikkei lost 1.8 per cent after US stocks dropped to their lowest in more than a year.

“A large part of the move is due to a broader market sell-off, with both US and Asian equity markets coming under pressure,” said commodities strategist Warren Patterson at Dutch bank ING in Amsterdam.

The Organisation of the Petroleum Exporting Countries and other oil producers agreed this month to curb production by 1.2 million barrels per day (bpd), equivalent to more than 1 per cent of global demand, in an attempt to drain tanks and boost prices.

But the cuts will not happen until next month and production has been at or near record highs in the United States, Russia and Saudi Arabia.

Russian oil output hit a record 11.42 million bpd this month, an industry source told Reuters.

Oil production from seven major US shale basins is by the year-end expected to surpass 8 million bpd for the first time, the US Energy Information Administration said.

Inventories at the US storage hub of Cushing, Oklahoma, delivery point for the oil futures contract, rose more than 1 million barrels from Dec 11 to 14, traders said, citing data from market intelligence firm Genscape.

Britain’s largest oilfield, Buzzard, restarted after repairs on pipework, a spokesman for operator Nexen said on Monday. Buzzard produces about 150,000 barrels per day and is the largest contributor to the Forties pipeline which brings oil to shore from more than 50 fields.

The United States has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with total crude output climbing to a record 11.7 million bpd.