By Dan Molinski and Amrith Ramkumar
U.S. oil prices sank deeper into a bear market Tuesday, posting
their steepest fall in over three years and a record 12 consecutive
days of losses, as fears of oversupply and weakening demand gripped
the market.
West Texas Intermediate for December delivery settled 7.1% lower
at $55.69 a barrel on the New York Mercantile Exchange, its
sharpest one-day fall since September 2015. Brent crude was down
6.6% at $65.47 a barrel, entering a bear market, defined as a 20%
drop from a recent peak.
The tumble in prices is a reversal from earlier this year when
anticipation that Iranian sanctions would shrink global supply sent
oil prices soaring. That quickly reversed last month as worries
about lower demand amid rising production from Saudi Arabia, Russia
and the U.S. propelled crude prices lower.
This week, a report from the Organization of the Petroleum
Exporting Countries on higher output and a tweet from President
Trump added to the downward momentum in prices.
"There has been a sea change in sentiment," said John Kilduff, a
founding partner at Again Capital. "We just flipped supply-wise
almost on a dime. It looks like a glut situation."
WTI slumped to its lowest price of the year on Tuesday after a
monthly report highlighted OPEC and Russian crude production
continued to climb in October, more than offsetting losses from
Iran.
Crude production from OPEC members rose by 127,000 barrels a day
in October to average 32.9 million barrels a day, the oil cartel
said Tuesday in its monthly report. Russia's production rose 50,000
barrels a day, while in Iran, production fell by 156,000 barrels a
day.
After two weeks of daily declines, oil prices seemed to be
starting a recovery Monday morning after a weekend announcement by
major producer Saudi Arabia that it would cut its exports to boost
prices and avoid an oversupply.
But then Mr. Trump tweeted Monday, "Hopefully, Saudi Arabia and
OPEC will not be cutting oil production. Oil prices should be much
lower based on supply!"
The comments surprised many analysts who said they had suspected
Mr. Trump's push for lower oil prices would end after the midterm
elections were over.
"Politics are still in play," said Tyler Richey, co-editor of
the Sevens Report. "President Trump's tweets directed at OPEC
opposing production cuts are another tally in the 'bear'
column."
Other factors have also played a role, said Matt Smith, director
of commodity research at ClipperData.
"You've also seen the dollar strengthening, which weighs on oil
prices, as well as a broader risk-off scenario for commodities as
equity markets declined in recent weeks," Mr. Smith said. "It's
been a waterfall of selling."
A stronger dollar makes commodities more expensive for overseas
buyers. The WSJ Dollar Index, which tracks the dollar against a
basket of 16 other currencies, closed at its highest level since
March 2017 on Monday.
U.S. prices have slid 25% after hitting a multiyear high of
$76.41 a barrel on Oct. 3. Driving prices higher had been
expectations that U.S. oil sanctions against major producer Iran
would create a supply squeeze amid continued rising demand from
markets like Asia.
Other top oil producers, mainly the U.S., Russia and Saudi
Arabia, began ramping up production to offset the expected drop in
Iranian exports.
But those developments collided in early November with
Washington's decision to soften its sanctions on Iran and grant
waivers to some buyers of Tehran's crude -- propelling crude prices
lower into what would turn into a record losing streak.
Additionally, there are increasing signs that oil demand is
starting to weaken as trade disputes between the U.S. and China
lead to lower growth forecasts for the global economy.
"Basically, we've gone from envisioning tighter supplies six
weeks ago to now expecting excess supplies on the market, and
demand is starting to falter," said Eugene McGillian, vice
president, market research at Tradition Energy.
The gloom in the oil market is partly because Saudi Arabia's
efforts to prop up the market aren't enough, say analysts at JBC
Energy.
The kingdom said its exports would come in 500,000 barrels a day
lower on the month in December. Saudi officials said major
producers should look at shaving off 1 million barrels a day of
supply in 2019.
Investors will watch for a pair of weekly reports Wednesday and
Thursday on U.S. oil inventories, which have been rising sharply in
recent weeks and contributing to oil's price decline.
Neanda Salvaterra contributed to this article.
Write to Dan Molinski at Dan.Molinski@wsj.com and Amrith
Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
November 13, 2018 15:24 ET (20:24 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.