Oil halts slide as signs of stockpile drop counter Opec doubts

Dwayne Harmon
November 21, 2018

Tuesday's drop extended a slide that has been largely unimpeded since early October.

"The most recent Baker Hughes rig count increased by two last week, taking the number of rigs to 888, the highest number since March 2015".

"For the time being it's more about risk", said Jim Ritterbusch, president of Ritterbusch and Associates. The global benchmark crude traded at a US$9.10 premium to WTI. Light short-covering is behind the moves as some investors adjust positions on the thought that OPEC and its allies may soon announce another round of production cuts to stem the oversupply situation.

"This is a risk aversion trade", said Mark Connors, global head of portfolio and risk advisory at Credit Suisse. U.S. President Donald Trump said Saudi Arabia has been "very responsive" to his requests to keep prices low, calling into question OPEC's resolve to trim supply.

This eased concerns about potential oil supply disruptions amid heightened US-Saudi tensions. This is reality. Production is rising, led by increasing output from the United States, Russia and Saudi Arabia, which now accounts for about a third of USA daily consumption. "It really is a too-big-to-fail relationship", said Joe McMonigle, senior energy policy analyst at Hedgeye Risk Management in Washington.

"Rising US crude inventories are also weighing heavily on sentiment, with expectations of a further build (of over 2 million barrels) this week".

Brent crude sank by about 4% today as fears of supply eclipsing weakening global demand continued.

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The API reported late-Tuesday that the USA commercial crude inventories last week fell unexpectedly by 1.5 million barrels, to 439.2 million, in the week to November 16.

Official government data is due Wednesday morning.

"While the news that OPEC+ said it would cut 1.4 million barrels of oil per day from production, it's looking likely that the cuts will have to be deeper in order to stabilise the price".

OPEC, Russia and other non-OPEC producers are considering a supply cut of between 1 million barrels per day (bpd) and 1.4 million bpd at a December 6 meeting, sources familiar with the issue have said.

Amid the uncertainty, financial traders have become wary of oil markets, seeing further downside risk to prices from the growth in USA shale production as well as the deteriorating economic outlook.

The losses were said to be a direct reaction to the S&P 500 index on Tuesday hitting a three-week low, as well as the slump in global stock markets over the past two months; also, news that US president Donald Trump said his country would remain a partner of Saudi Arabia even though "it could very well be" that Saudi crown prince Mohammed bin Salman had knowledge of the killing of Jamal Khashoggi eased concerns about potential oil supply disruptions.

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