Oil falls to lowest level in a year on concerns of looming supply glut
NEW YORK and LONDON (Bloomberg) -- Oil tumbled below $54/bbl for the first time in a year amid concern OPEC’s plans to cut production won’t be enough to stem a surge in stockpiles and a selloff in global equities.
Futures for January delivery fell as much as 6.2% in New York. A government report on Wednesday may show U.S. crude inventories rose by 3.5 MMbbl last week, according to a Bloomberg survey of analysts. Russia, meanwhile, is sowing doubts about whether it will join OPEC in its next round of output cuts.
A slump in U.S. equities added to worries about slackening demand. The S&P 500 Energy Index slumped as much as 3.3%, with all of its members down on the day. Marathon Oil and Devon Energy were the worst decliners, losing more than 6% each.
“I think you’re going to see a risk-off type of market," Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors, said in an interview. “It wouldn’t be surprising to see new lows being printed on oil" if U.S. inventories surge.
Russian Energy Minister Alexander Novak said Monday that the country and its allies in OPEC need to watch the oil market in the coming weeks before making any decisions to reduce output. The wait-and-see approach contrasts with Saudi Arabia’s call for cuts, just weeks before a key summit in Vienna.
Crude markers in New York and London have both fallen more than 20% from their October highs on concerns over a supply glut after the U.S. granted waivers to some buyers of Iranian oil despite sanctions.
“The name of the game in the oil market is volatility,” International Energy Agency Executive Director Fatih Birol said at a conference in Oslo. “And with the increasing pressure of geopolitics on oil markets that we are seeing, we believe that we are entering an unprecedented period of uncertainty.”
West Texas Intermediate for January delivery sank $3.10 at $54.10/bbl on the New York Mercantile Exchange. Total volume traded Tuesday was 73% above the 100-day average.
Brent for January settlement dropped $3.04 to $63.75/bbl on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a $9.63 premium to WTI.
Oil Market News
Gasoline futures sank 4.5% to $1.5116/gal. Oil may be poised for a recovery and OPEC will probably reimpose supply cuts in the next month or two, according to legendary trader Andy Hall. An oversupplied crude market next year will help the U.S. cut Iranian sales further as President Trump targets the country’s main source of income, a State Department official said.
