Oil Prices Plunge Below $48 a Barrel on Oversupply Concerns; Saudi Arabia Announces Budget
Oil prices touched new yearly lows on Tuesday, as traders continued to doubt plans by OPEC and its allies to drain excess supply from the market. Escalating trade tensions between the United States and China exacerbated the early-morning selloff after President Xi Jinping echoed his country’s growing economic prowess, sending a clear signal that Beijing will not back down in a trade war.
Oil Resumes Slide
Oil futures in New York and London fell on Tuesday to their lowest levels in over a year. The U.S. West Texas Intermediate (WTI) benchmark fell as much as 4.1% overnight before paring losses later in the day. It was last down $1.20, or 2.4%, to trade at $48.68 a barrel on the New York Mercantile Exchange. Brent crude established a new yearly bottom at $57.20 a barrel. At press time, the contract was down $1.07, or 1.8%, at $58.54 a barrel.
Energy markets got no reprieve from a sliding U.S. dollar, which now sits at its lowest level in 11 days. The dollar index (DXY) declined 0.1% to 96.97.
Crude has fallen into a protracted bear market amid slowing economic growth and signs of oversupply. Efforts by the Organization of Petroleum Exporting Countries (OPEC) to rein in excess supplies have failed to convince traders that the market will return to balance.
Saudis Announce Budget
Saudi Arabia has no plans to curtail citizens’ living expenses in 2019 despite the latest drop in oil prices. According to the kingdom’s new budget blueprint, state spending will grow 7% next year to $1.106 trillion riyals ($295 billion). That’s in line with the September budget, when international crude prices were valued at $80 a barrel.
According to analysts, the cost-of-living outlays are expected to help boost sluggish economic growth and reaffirm support for Crown Prince Mohammed bin Salman following a string of controversies that have caught international attention.
Xi on China’s Return to Power
Chinese President Xi Jinping on Tuesday reaffirmed his country’s return to power in an 80-minute speech to the Communist Party in Beijing. The speech, which was intended to mark the 40th anniversary of the “Reform and Opening Up” campaign, sent a clear signal that Beijing will not back down against U.S. trade threats.
“No one is in the position to dictate to the Chinese people what should and should not be done,” Xi said, according to Bloomberg.
The remarks came days after government data confirmed the biggest slowdown in retail sales growth in over 15 years. Sluggish retail sales and industrial production figures are the latest in a series of reports signaling a broad cool down in domestic growth. Although this trend long predated the Trump administration, Washington’s escalating trade war appears to have made matters worse.
China and the United States are currently locked in a 90-day negotiation round aimed at resolving the trade dispute. Key milestones have been reached but a comprehensive deal has not yet been achieved.
Featured image courtesy of Shutterstock.