Oil Futures Fall on Too Much Oil

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and the Brent contract on Intercontinental Exchange extended losses in afternoon trade Monday, with both West Texas Intermediate and Brent shedding nearly 1.5% amid growing concerns over the supply-demand disposition in 2020, as producers within the OPEC+ alliance appear reluctant to opt for deeper cuts at next month's policy meeting.

At settlement, NYMEX WTI December futures dropped $0.67 to $57.05 per barrel (bbl), with the January contract ending the session with a modest $0.09/bbl premium. ICE January Brent futures fell $0.86 to a $62.44/bbl settlement, fading from an eight-week high on the spot continuous chart. Product futures posted greater losses in market-on-close trade, with December ULSD futures settling down 4.33 cents at $1.9047 per gallon and December RBOB futures dropped back 1.4 encts to $1.6210/gallon.

The oil complex erased hefty gains from late last week amid growing concern global crude supplies will continue to rise next year, outpacing demand. According to the International Energy Agency, new production from countries outside the OPEC block is set to increase by 2.3 million barrels per day (bpd) in 2020, with substantial gains seen in the United States, Brazil, Norway and Guyana. Concerns about plentiful crude supplies further complicate the decision on production cuts by the producers within the OPEC+ alliance that are set to debate future course of action on Dec. 5-6 in Vienna. OPEC's officials indicated the group is likely to maintain existing production cuts at 1.2 million bpd and focus on bringing lagging members into full compliance with the agreement.

Markets will view a decision to keep existing supply cuts as bearish amid surging non-OPEC supplies and the lack of a trade agreement between the United States and China.

Also weighing on the market is consistent undercompliance with existing quotas by the key members of the OPEC+ alliance. Russia once again reported crude production for last month above the pledged 11.191 million bpd quota. Analysts believe Russian crude production is likely to rise in the upcoming months, as Moscow launches two pipelines -- Power of Siberia and ESPO -- at the beginning of 2020, further complicating discussions by OPEC+.

In the United States, the Energy Information Administration Monday projected a continued rise in U.S. shale oil production in December. The agency forecasted an increase of 49,000 bpd in December from November to 9.133 million bpd.

In financial markets, U.S. equities swung between gains and losses on Monday, with the Dow Jones Industrial Average ending at a 28,036.22 fresh record high.

As Beijing and Washington appear to have achieved some progress in trade talks, there is still no clear timeline on signing a bilateral trade agreement. CNBC reported earlier that some Chinese officials are skeptical about the viability of a long-term trade deal with the Trump administration, spooking already shaky markets and briefly sending the DJIA lower. Last week markets rallied on the reports that a 16-month long trade war between the world's largest economies might be nearing final resolution.

China on Monday lowered its key interest rate by 50 basis points to 2.5% -- making it the first cut in nearly four years. Analysts believe the move sends a clear message to the markets Beijing is ready to act on accommodative monetary policy to reverse stalling growth.

Liubov Georges can be reached at liubov.georges@dtn.com

(CZ)

Liubov Georges