NEW YORK • Oil prices tumbled more than 6 per cent on Tuesday in heavy trading volume, with US crude diving to its lowest level in more than a year, caught in a broader Wall Street sell-off fed by mounting concerns about a slowdown in global economic growth.
The United States' West Texas Intermediate (WTI) crude futures ended the session down US$3.77, or 6.6 per cent, at US$53.43 per barrel. The contract fell as much as 7.7 per cent to touch US$52.77 a barrel, the lowest since October last year.
More than 946,000 front-month WTI contracts changed hands, exceeding the daily average over the last 10 months and the second-highest daily volume since June, according to Refinitiv data.
Brent crude futures fell US$4.26, or 6.4 per cent, to settle at US$62.53 a barrel. The international benchmark fell as much as 7.6 per cent to US$61.71 during the session, the lowest since December 2017.
Oil's slide has been largely unimpeded since early last month when WTI prices were near four-year peaks. Since then, WTI has fallen over 30 per cent. "For the time being, it's more about risk," said Ritterbusch and Associates' Jim Ritterbusch. "When the stock market comes off 8 or 9 per cent, it tends to conjure up images of a weak global economy... that feeds into expectations of weaker-than-expected oil demand."
The S&P 500 index on Tuesday hit a three-week low as weak results and forecasts from big retailers fanned worries about holiday season sales, while tech stocks slid on concerns about iPhone sales.
Global stock markets have slumped in the past two months on worries about corporate earnings, rising borrowing costs, slowing global economic momentum and trade tensions. Traders see further downside risk to oil prices from growing US shale production and a deteriorating economic outlook.
Macro-focused funds and commodity trading advisory (CTA) firms have pulled back positions in recent weeks as the sell-off has accelerated, market participants said.
According to Credit Suisse, prior to oil's sell-off early last month, macro/discretionary funds and CTAs held a net long position that ranked in the top decile over the past five years. As of Monday, those funds were balanced between long and short positions as traders sold long positions and funds shifted to the sidelines. "This is a risk aversion trade," said Credit Suisse global head of portfolio and risk advisory Mark Connors.
Prices ticked lower after President Donald Trump said the US intends to remain a "steadfast partner" of Saudi Arabia though "it could very well be" that Saudi Crown Prince Mohammed bin Salman had knowledge of the killing of journalist Jamal Khashoggi last month in Turkey. This eased concerns about potential oil supply disruptions amid heightened US-Saudi tensions.
"I never really understood the premium behind some kind of friction between US and Saudi Arabia from a policy standpoint... It really is a too-big-to-fail relationship," said senior energy policy analyst Joe McMonigle at Hedgeye Risk Management in Washington.
Expectations for a ninth straight week of US crude inventory increases also weighed on prices. Analysts polled ahead of weekly data forecast crude stocks rose about 2.9 million barrels last week.