Oil prices plummeted on Tuesday, snapping four days of gains and renewing a sell-off that has plunged crude futures into bear market.
U.S. West Texas Intermediate (WTI) crude futures fell $3.22, or 5.6 percent, to $53.98 per barrel by 10:33 a.m. ET (1533 GMT). The contract earlier fell more than 6 percent, hitting its lowest level going back to October 2017.
Brent crude, the international benchmark for oil prices, dropped $3.13, or 4.7 percent, to $63.66 a barrel. Brent hit a fresh eight-month low on Tuesday.
The renewed selling in the energy complex dovetailed with a sharp pullback in the stock market. The Dow Jones Industrial Average fell more than 550 points on Tuesday.
Crude futures and equities fell in tandem during a broad market sell-off that saw investors dump risk assets last month.
Since then, commodity watchers have grown more concerned that supply will outstrip demand next year. The market now expects OPEC, Russia and several other allied producers to launch a fresh round of output cuts in the coming weeks to prevent a price-crushing global crude glut.
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Oil prices are around a quarter below their recent peaks in early October, weighed down by surging supply, especially from the United States, as well as a slowdown in global trade.
“The same old adage applies…Too much supply, not enough demand,” said Matt Stanley, a fuel broker at StarFuels in Dubai.
U.S. crude oil production has soared by almost 25 percent this year, to a record 11.7 million barrels per day (bpd).
Amid the uncertainty, financial traders have become wary of oil markets, seeing further price downside risks from the growth in U.S. shale production as well as the deteriorating economic outlook.
Portfolio managers have sold the equivalent of 553 million barrels of crude and fuels in the last seven weeks, the largest reduction over a comparable period since at least 2013.
Funds now hold a net long position of just 547 million barrels, less than half the recent peak of 1.1 billion at the end of September, and down from a record 1.484 billion in January.
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Concerned about an emerging production overhang similar to the one that led to a price slump in 2014, the Organization of the Petroleum Exporting Countries (OPEC) is pushing for a supply cut of 1 million to 1.4 million bpd.
“We expect OPEC to agree to a supply cut at its next official meeting on 6 December,” French bank BNP Paribas said.
The bank added that it expected Brent to recover to $80 per barrel before year-end.
“In 2019, we expect WTI to average $69 per barrel and Brent $76 per barrel,” BNP said.
The International Energy Agency (IEA), which represents the interest of oil consumers, on Monday warned OPEC and other producers of the “negative implications” of supply cuts, with many analysts fearing that a spike in crude prices could erode consumption.
The head of the International Energy Agency (IEA) warned of the effects of geopolitical instability on prices.
“We are entering an unprecedented period of uncertainty in oil markets,” Fatih Birol told a conference in Norway.
Source: cnbc.com | Original Link