Oil Prices Fall on Strong Dollar, Global Growth Concerns
Crude oil traded lower on Monday and was on track for its largest monthly decline in over two years, as concerns over global growth clouded the market’s energy outlook. Commodity markets were also being pressured by the U.S. dollar, which is currently testing two-month highs against a basket of competitor currencies.
The West Texas Intermediate (WTI) benchmark for U.S. crude futures fell by as much as 1.4% on Monday, reaching a low of $66.67 a barrel on the New York Mercantile Exchange. That would have marked the second-lowest settlement in over two months. At the time of writing, WTI Nymex crude was down 42 cents, or 0.6%, to $67.17 a barrel.
Brent crude, the international futures benchmark, declined 1% to an intraday low of $76.81 a barrel. Brent was last down 31 cents, or 0.4%, at $77.31 a barrel.
Oil prices are on track for their worst monthly performance since mid-2016.
Demand Constraints, Oversupply Concerns
A combination of demand constraints and higher commercial inventories have kept oil prices firmly capped the past four weeks. On the demand side, a slowdown in global growth has raised the risk of declining consumption in key emerging markets, most notably China.
The Chinese economy expanded 6.5% annually in the third quarter, a nine-year low, following a wave of protectionist tariffs lobbed at Beijing by the Trump administration. The threat of an escalating trade war prompted the International Monetary Fund (IMF) to lower its outlook on global growth in the next two years.
China’s economic slowdown has been accompanied by a multi-trillion-dollar selloff in domestic stocks. Recently, the selloff shifted to Wall Street, where the major indexes entered correction territory. The global equity shakedown has placed downward pressure on industrial commodities, which have also come under attack from a rising U.S. dollar. The U.S. dollar index (DXY) peaked at 96.70 on Monday, the highest in over two months.
On the supply side, Saudi Arabia and Russia are ramping up production ahead of U.S.-led sanctions on Iran coming into effect later this week. This ramp up is expected to diffuse the loss of Iranian barrels.
These conditions are making fund managers more bearish on oil than at any time since July 2017. According to Reuters, fund managers have slashed their bullish positions on oil futures and options for four consecutive weeks. Data from Intercontinental Exchange and the U.S. Commodity Futures Trading Commission show that bullish positions have plunged by a third in four weeks.
Featured image courtesy of Shutterstock.