The oil market is undergoing a stunning reversal as crude futures fell their most since 2015, wiping out this year’s gains after hitting their highest levels since 2014 just six weeks ago.
Tom DiChristopher of CNBC.com had the news:
The slump reflects a fundamental change in the outlook for the oil prices. A month ago, traders were concerned that a looming shortage of oil would push crude futures to $100 a barrel. Now, supply is expected to swamp demand at the start of 2019.
As a result, oil prices have plunged more than $20 a barrel since the start of October, when Brent crude rose to nearly $87 a barrel and U.S. crude traded just shy of $77. Both benchmarks are now trading firmly in bear market territory, having fallen more than 20 percent from their 52-week highs.
Along the way, U.S. crude has posted its longest losing streak since it began trading in New York more than three decades ago. The contract has now fallen for 12 consecutive sessions. It settled at $55.69 on Tuesday, its lowest closing price since Nov. 16, 2017.
Myra Saefong of MarketWatch.com reported multiple reasons for the drop:
Here are some of the key reasons that oil prices have staged a gut-wrenching drop, after posting a 52-week high back on Oct. 3:
- Oversupply: The Organization of the Petroleum Exporting Countries raised its production in September by 100,000 barrels a day to 32.78 million barrels of oil a day—a one-year high, according to the International Energy Agency.
- A surprise: Trump granted waivers to eight countries, allowing them to temporarily continue buying Iranian oil despite U.S. sanctions on the country’s energy sector which took effect Nov. 4.
- Seasonality: A time of planned shutdowns at major crude-oil refineries for maintenance, is more active than normal, resulting in more crude in inventories amid a period that was already expected to see slowing demand
- Trump: President Donald Trump has been consistently advocating for lower oil prices and on Monday issued a tweet urging for even lower prices
- U.S. oil: U.S. production climbed by 400,000 barrels a day to a record 11.6 million barrels a day for the week ended Nov. 2, adding to oversupply worries
Tom Kool of OilPrice.com reported that OPEC is trying to stop the decline:
Oil fell yet again on Tuesday, with the string of losses starting to mount. WTI fell below $60 and Brent fell below $70, hitting fresh one-year lows in the morning. Saudi Arabia is trying hard to stop the price declines, but it is going to need to convince OPEC+ to do more at the upcoming meeting in three weeks’ time.
OPEC slashes oil demand forecast. OPEC cut its oil demand forecast for 2019, the fourth consecutive month that it has done so. The cartel now only sees demand rising by 1.29 mb/d in 2019, down another 70,000 bpd from last month’s forecast. At the same time, non-OPEC supply is expected to grow by a massive 2.23 mb/d next year, an upward revision of 120,000 bpd. “Although the oil market has reached a balance now, the forecasts for 2019 for non-OPEC supply growth indicate higher volumes outpacing the expansion in world oil demand, leading to widening excess supply in the market,” OPEC said.
OPEC supply rises despite Iran. Total OPEC production jumped in October, as Saudi Arabia and the UAE more than offset the declines from Iran. Iran saw production fall by 156,000 bpd, and Venezuela suffered another 40,000-bpd monthly decline. But Saudi Arabia added 127,000 bpd and the UAE added 142,000 bpd. Combined the entire group’s production edged up by 127,000 bpd. As the market expected supplies to tighten due to Iran sanctions, the increase has helped push down crude oil prices.
