U.S. Oil Enters Bear Market on Rising Inventories, Worries of Oversupply
09 November 2018 - 9:01AM
Dow Jones News
By Dan Molinski
U.S. oil prices slid for a ninth straight session Thursday,
hitting an eight-month low and entering a bear market amid worries
over rising global output and signs of deteriorating demand.
Light, sweet crude for December delivery ended 1.6% lower at
$60.67 a barrel on the New York Mercantile Exchange, putting it
about 21% below its recent high. Brent crude, the global benchmark,
fell 2% to $70.65 a barrel, roughly 18% below its peak. Bear
markets are generally defined as a 20% decline from a market
peak.
The U.S. benchmark had risen to a nearly four-year high of
$76.41 a barrel just over one month ago, on Oct. 3. But since then
it is fallen sharply due to rising production, a softening of U.S.
oil sanctions on Iran, and trade tensions that are sparking worries
of slower global economic growth that could in turn reduce demand
for oil.
The oil-selling intensified over the past two days after a
report from the Energy Information Administration showed U.S. oil
inventories have risen for seven weeks straight to a five-month
high of 432 million barrels. The report also showed U.S. oil
production increased to a record 11.6 million barrels a day, fueled
largely by production in shale regions such as West Texas and North
Dakota.
"The crude builds certainly didn't help prices," said Mark
Waggoner at Excel Futues. "But behind these numbers, and what many
regular people don't know -- but oil traders certainly do -- was
the U.S. just became the world's largest crude oil producer a
couple of weeks ago, barely squeaking by Russia. That's huge."
Adding to pressure on oil prices was a decision last week by the
Trump administration to issue waivers, or exceptions, to its oil
sanctions against Iran, allowing eight countries to continue to buy
Iranian crude. That essentially ended any fears of a
sanctions-created supply squeeze, at least for now.
"Even before a larger number of Iran sanctions waivers was
announced on Friday, market sentiment had soured on crude," said
analysts at Energy Aspects in a research note. "Against a backdrop
of economic uncertainty because of US-China trade tensions, longs,"
or investors betting on higher prices, "have given up."
Hedge funds and other speculative investors have been ditching
bullish oil wagers. Bullish bets on U.S. crude outnumbered bearish
bets 4 to 1 as of October 30, which is far lower than the 26-to-1
ratio in early July, according to Commodity Futures Trading
Commission data.
The further decline in prices this week increases the importance
of a meeting this Sunday in Abu Dhabi among members of the
Organization of the Petroleum Exporting Countries, as many expect
the group will consider production cuts as a way to boost global
oil prices. "In view of the latest price slump and the oversupply
that looks set to materialize next year, OPEC is thinking about
cutting back oil production," Commerzbank analysts said in a
note.
Russia, along with OPEC nations led by Saudi Arabia, has been
pumping more oil since the summer to offset the loss of Iranian
barrels, which now looks likely to be smaller than was anticipated
due to waivers granted to some buyers.
Among refined products, gasoline futures for December delivery
fell 0.2% to $1.6443 a gallon. Diesel futures rose 3.1% to $2.1683
a gallon.
Write to Dan Molinski at Dan.Molinski@wsj.com
(END) Dow Jones Newswires
November 08, 2018 16:46 ET (21:46 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.