U.S. Oil Enters Bear Market on Rising Inventories, Worries of Oversupply

Date : 09/11/2018 @ 09:01
Source : Dow Jones News

U.S. Oil Enters Bear Market on Rising Inventories, Worries of Oversupply

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.
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