Monday 23 September 2019

Oil slumps lower on market sell-off and record Saudi Arabia production

US president Donald Trump has called for further price cuts from Saudi Arabia. Photo: AP
US president Donald Trump has called for further price cuts from Saudi Arabia. Photo: AP

Alex Nussbaum and Grant Smith

Oil prices have plunged, with futures in London slipping below $60 for the first time in a year, as a global stock-market sell-off and signs of record Saudi output helped intensify crude's late-year freefall. Brent, the international benchmark, dropped as much as 5.9pc.

Traders are focused on the growing risks of a new glut of crude after Saudi Arabia's oil minister said last Thursday that production from the world's largest exporter climbed further this month.

Oil joined a swoon in equity markets nervous about international trade and a weakening economy. The S&P 500 Index fell to its lowest mark since May while European markets lost ground after a report showing a slowdown in Germany.

Energy companies led declines, with shale drillers Concho Resources and EOG Resources each down more than 5pc. "Crude's getting shellacked," said Kyle Cooper, director of research at IAF Advisors in Houston. "The equities are giving a foreboding sign for overall economic growth. I think that's what's disturbing people."

The Saudis have signalled they will throttle back on production in December, but unless the Organisation of Petroleum Exporting Countries (Opec) and Russia can reach a new deal to constrain output in Vienna next month, analysts see the prospect of sustained oversupply in 2019, undoing the group's success over the last two years to drain global inventories.

Crude collapsed into a bear market this month after the US allowed some nations to continue buying Iranian crude. Trade tension between America and China is raising concerns over demand and President Donald Trump renewed his call on Saudi Arabia this week to cut prices further.

These factors pushed up oil's volatility to the highest since early 2016. "The increased tensions between the US and China are adding to the intensely sour sentiment in energy markets," TD Securities analysts led by Bart Melek wrote in a note to clients last Friday. A strike at key French refineries this week has added another threat to demand, he noted. "We continue to see fundamentals improving in the near-term, but caution traders against sticking their necks out until the momentum shock finds a more solid floor."

Brent for January settlement fell $3.82, or 6.1pc, to $58.78 a barrel at 11.8am in New York. It was headed for a 12pc loss on the week, according to data from the London- based ICE Futures Europe exchange. The global benchmark traded at a $7.85 premium to WTI. West Texas Intermediate for January delivery lost 6.9pc from Wednesday's close to $50.88 a barrel on the New York Mercantile Exchange. Total volume traded was almost twice the 100-day average. There was no settlement last Thursday due to the US Thanksgiving holiday.

Bloomberg

Bloomberg

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