Oil Prices Sink to New 2018 Lows as Attention Shifts to OPEC
Crude oil was back on the defensive Tuesday, with U.S. futures prices plunging by as much as 6.2% on concerns of rising supplies and a cooling economy. A broad selloff in stocks and other risk-on assets also undercut commodity prices following a tepid recovery that stretched into Monday.
Crude Prices Slump
The West Texas Intermediate (WTI) benchmark for U.S. crude futures bottomed at $53.63 a barrel, the lowest in over a year. The futures contract is currently trading at $54.31 a barrel on the New York Mercantile Exchange, having declined $2.89, or 5.1%, from the previous close.
Brent crude, the international futures benchmark, fell by as much as 5.5% to reach $63.11 a barrel on London’s ICE futures exchange. Brent barrels last traded at $63.38 a barrel, down $3.41, or 5.1%.
Crude prices had traded relatively steady over the previous five sessions, as markets clawed their way back from a devastating correction. Since peaking at multi-year highs in early October, oil prices are down whopping 29%.
The latest downturn has been exacerbated by a tidal wave of volatility affecting global equity markets. Chinese stocks plunged more than 2% on Tuesday, while Japan’s benchmark Nikkei fell 1.1%. In Europe, all major indexes fell between 0.8% and 1.6%.
The tech-inspired selloff in U.S. stocks spread to other sectors on Tuesday, with the Dow and S&P 500 reversing their gains for the year. At the time of writing, both indexes were in the red for 2018.
Supply to Outstrip Demand
The revival of Iran sanctions was supposed to create a large supply gap that would lead to ever-increasing prices through early 2019, with some analysts going as far as predicting $100 a barrel oil in the not-too-distant future. However, the complete opposite has occurred after Saudi Arabia and its allies vowed to ramp up production to offset the decline in Iranian shipments. Although the Saudis have vowed to slash output, market observers now expect global supplies to outpace demand in 2019.
That’s because oil demand is expected to grow slower than expected next year while U.S. refineries ramp up production to keep pace with the largest producers. Meanwhile, the Trump administration is allowing some of Iran’s largest customers to continue importing crude despite renewed sanctions against Tehran.
Commodity watchers will be keeping close tabs on an upcoming meeting of the Organization of the Petroleum Exporting Countries (OPEC). The 15-member cartel is expected to slash output by as much as 1.4 million barrels per day when it meets in Vienna, Austria on Dec. 6.
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