Oil Extends Losing Streak To Record 12 Sessions: What's Driving Prices Lower?

Oil Extends Losing Streak To Record 12 Sessions: What's Driving Prices Lower?

The downturn has been going on for several weeks, as the US and Russian Federation showed signs of higher levels of production and Saudi Arabia appeared willing to let prices fall. The decline in prices continued last week after the United States said it would let eight countries keep importing Iranian oil.

Brent dropped US$1.97 a barrel, or 2.8 per cent, to a low of US$68.15 and was trading at around US$68.40 by 1045 GMT.

Oil's fall accelerated on Tuesday, with U.S. futures dropping to lows not seen in 11 months due to ongoing worries about weakening global demand, oversupply and selloffs across other asset classes, including equities.

In this context, then, it is no surprise OPEC officials, notably Saudi Arabia's Khalid al-Falih have started to talk about production cuts again for fear of another glut like the one that dragged prices below US$30 a barrel four years ago.

In its monthly report, Opec said world oil demand in 2019 would rise by 1.29 million barrels per day (bpd), 70,000 bpd less than predicted last month and the fourth consecutive forecast cut.

President Donald Trump has tweeted that they shouldn't cut production, setting up a standoff between the USA administration and OPEC before it meets in Vienna on December 6.

Stocks of oil marketing companies too gained in value as brent crude prices fell below $69 per barrel.

Saudi Arabia, a prominent member of the oil cartel, said it would cut exports by as much as 500,000 barrels per day (bpd) in November and December to curb oversupply.

Brent Crude is not down more than 20 percent from its recent high, officially putting it in bear market territory.

Spot prices in September were significantly higher than those for later delivery, a structure known as backwardation that implies a tight market as it is unattractive to put oil into storage.

"The market now increasingly looks concerned about the prospect of too much supply", said Norbert Ruecker, head of macro and commodity research at Swiss bank Julius Baer.

But Trump has made it clear he wants oil prices to fall. In July, Trump called the organization a "monopoly", warning on Twitter that "gas prices are up & they are doing little to help".

The U.S. has meanwhile allowed some of its allies - Greece, India, Italy, Japan, South Korea, Taiwan and Turkey - as well as rival China to continue to purchase Iranian oil despite re-imposed sanctions, as long as they work to reduce their imports to zero.

With the U.S. now the world's top oil producer ahead of Saudi Arabia and Russian Federation, there are indications that traders will keep selling crude at lower prices as a result of oversupply. Output, however, rose by 127,000 bpd to 32.9 million bpd, OPEC said.

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