Oil slips as pessimism over supply resurfaces despite OPEC pledge

Roman Schwartz
November 21, 2018

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.

Fiona Cincotta, senior market analyst at City Index, said yesterday: 'Fears of slowing global growth are fuelling concerns over global demand, just at a time when Saudi Arabia, Russia and the USA continue to ramp up production'.

Additionally, money managers cut their bullish wagers on crude oil futures and options to their lowest level since June 2017, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

On Monday, crude oil futures ended up $0.52, or 0.9%, at $57.20 a barrel.

Hussein Sayed, chief market strategist at futures brokerage FXTM said USA comments from APEC "suggest that a deal between President Trump and President Xi is unlikely to see the light when the leaders meet at the G20 Summit later this month".

So far in the session, more than 585,000 US futures contracts had changed hands, exceeding the daily average over the last 10 months.

International Brent crude oil futures LCOc1 were at $63.19 per barrel at 0239 GMT, up 66 cents, or 1.1 percent from their last close.

Exacerbating the rise in global oil supplies, the Trump administration is allowing some of Iran's biggest customers to continue importing crude despite restoring sanctions on the Islamic Republic.

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The link between crude oil prices and shares of oil-producing companies has weakened.

Brent crude sank to little more than $62 a barrel, its lowest level since last December.

Despite the gains, crude prices remain nearly a quarter below their recent peaks in early October, weighed down by surging supply and a slowdown in demand growth. If the grouping agrees to the production cut at its December 6 meeting, it will once again start pinching Indian consumers and give the opposition a handle against the government just when the pitch for general elections will be at its highest.

With the U.S. -China trade dispute threatening to hurt global economic growth, demand for crude oil is expected to drop significantly in the near term.

USA crude stockpiles have grown for eight straight weeks, and data last week showed inventories swelled by the most in more than a year.

The current production cut agreement, in force from January 2017, has removed a combined 1.8 million barrels of crude per day from the market to help the market re-balancing.

USA crude prices have now dropped as much as 31 percent from a four-year high last month.

The International Energy Agency (IEA), which represents the interest of oil consumers, on Monday warned Opec and other producers of the "negative implications" of supply cuts, with many analysts fearing that a spike in crude prices could erode consumption.

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