Oil set for biggest weekly loss in four years on economy fears
LONDON and SEOUL (Bloomberg) -- Oil headed for its biggest weekly decline since 2014 on concerns that weakening economic growth and surging U.S. supply will lead to a surplus next year, overwhelming OPEC’s efforts to stabilize the market.
Futures fell as much as 1.6% in New York to the lowest since July 2017 and headed for the biggest weekly and quarterly losses in four years. Crude joined a sell-off in wider financial markets after an interest rate increase by the Federal Reserve and the threat of a U.S. government shutdown added to economic uncertainty. Meanwhile, investors remain skeptical that cuts agreed by OPEC and its allies are sufficient to avert a looming oil glut.
“It’s a bears’ world,” said Stephen Brennock, an analyst at PVM Oil Associates “At the heart of this subdued backdrop is a bearish bias on the supply side,” while at the same time, “oil demand prospects have dimmed as storm clouds gather over the global economy.”
Crude has slumped on fears the relentless expansion in American shale will undermine efforts by OPEC and its partners to balance the market. Concerns over growth persist even as Fed Chairman Jerome Powell promised to be more cautious on raising rates next year, while a closely watched speech by Chinese President Xi Jinping offered no new reforms to stimulate the world’s second-largest economy.
West Texas Intermediate for February delivery fell as much as $0.75 to $45.13/bbl on the New York Mercantile Exchange, and was at $45.45/bbl. The U.S. benchmark has lost 11.3% this week, and 39% in the quarter. Total volume traded was about 42% above the 100-day average.
Brent for February settlement slipped $1.04 to $53.31/bbl on London’s ICE Futures Europe exchange, after falling 5.1% on Thursday and closing below $55/bbl for the first time in more than a year. Prices are down 12% for the week. The global benchmark crude traded at an $7.85 premium to WTI.
Oil’s slump persisted this week on broader market turmoil spurred by a plunge in global equities after the U.S. central bank lowered the forecast for 2019 economic growth to 2.3% from 2.5% in September. While policy makers scaled back the number of rate increases, they see next year to two, from three that were anticipated in September, that’s still more than investors expected.
Meanwhile, President Trump warned of a lengthy partial government shutdown if Democrats don’t back a stopgap spending measure that includes money to build a wall along the U.S.-Mexico border. The demand comes hours before a deadline to approve the must-pass legislation.
OPEC and its allies will give greater clarity on their strategy to stabilize oil markets on Friday by publishing a list of production cuts agreed by each country, according to people familiar with the matter. The figures to be published are in line with expectations, showing that participating nations will curb output by about 3 percent, mostly from October levels, delegates said.
Oil Market News
U.S. shale producers, long the disruptors of the global oil market, have started to rein in spending to ride out the sudden crash of crude prices. Venezuela’s capital was roiled by gasoline shortages Thursday, snarling traffic and infuriating residents in the stricken country with another woe just before the holiday season. Year-end oil prices aren’t representative and it’s important to monitor what will happen to the market in January, Tass reported, citing Russia’s Energy Minister Alexander Novak.
