Oil price skids on oversupply fears and creaky world economy

Wednesday, December 19, 2018

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NEW YORK, United States (AFP) — World oil prices tumbled yesterday to their lowest levels in more than a year, hit by fears over the outlook for the global economy and doubts over producers' resolve to cut output.

The plunge in oil prices came on a mixed day for global stocks, with European and Asian markets falling in the aftermath of Monday's Wall Street rout.

US stocks mustered modest gains, but finished well below their session peaks as worries about a possible US government shutdown and a likely Federal Reserve rate hike weighed on sentiment.

“The psychology of the market is very fragile,” said Tom Cahill of Ventura Wealth Management, who said the budget sparring between congressional Democrats and US President Donald Trump added to the list of question marks.

Cahill was not cheered by the idea of a Fed pausing its course of rate increases.

“If the Fed doesn't hike rates, that would be concerning because it would mean the institution miscommunicated in a substantial way with the market,” Cahill said.

“It would be problematic for the future announcements by the Fed.”


Brent crude finished at US$56.26 a barrel, a drop of over five per cent on the day, while US benchmark WTI plummeted well over six per cent to a US$46.60 a barrel, its lowest level since August 2017.

Fears that Iran sanctions reimposed by Washington would cause a drastic drop in output, and a corresponding surge in prices, underpinned oil at the start of the quarter, said David Cheetham, chief market analyst at xtb.

“But these concerns now look badly misplaced and it seems that a lot of people were caught on the wrong side in looking for US$100 a barrel crude once more,” he said.

There also are questions about the impact of a recently promised output cut by OPEC and other top producers including Russia.

“OPEC may have come to an agreement with its allies to cut production next year and rebalance markets... but traders are clearly not convinced enough will be done,” Oanda analyst Craig Erlam predicted.

Cheetham said reports saying Russia was pumping oil at record levels “raises concerns surrounding their intentions to follow through on their promises to cut output alongside OPEC members.”

US oil production data Wednesday could add more pressure if output is high.

Asian equities posted sharp losses earlier in the wake of Monday's Wall Street selloff, while the British stock market remained beset with worries over the nature of the nation's looming exit from the European Union next March.

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