CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange dove deeper into bear territory Tuesday, plunging to new lows as world economic growth is being questioned amid worry over the U.S./China trade dispute that is seen dampening oil demand at a time when global oil production is at a record high.
Calls by Saudi Arabia for a production cut by the Organization of the Petroleum Exporting Countries, Russia and other non-OPEC oil producers aligned with OPEC of as much as 1.4 million barrels per day (bpd) in 2019 when they meet in a little more than two weeks is seen as too little and too late to stem a glut in global oil supply four years after a previous glut tanked world oil prices.
The market's current disposition is a direct result of geopolitics, as oil prices rallied from the second quarter into the fourth quarter on concern the re-imposition of U.S. sanctions on Iranian oil exports would leave the market short during the current fourth quarter, with world oil demand seen at a record high for the last three months of 2018 above 100 million bpd. The expectation was heightened amid U.S. diplomatic efforts to press Iranian oil exports to zero from about 2.3 million bpd in May, while crude production in Venezuela continues to bleed out amid economic collapse.
The call in June for world oil producers to produce more, including pressure from U.S. President Donald Trump on OPEC, namely Saudi Arabia, to counter rising oil prices would untie Russia's hands, prompting monthly gains in Russian oil production that reached a post-Soviet high of 11.41 million bpd in October. As part of OPEC+, Russia had cut production by 300,000 bpd as part of the Vienna agreement reached in late 2016 to clear a globally oversupplied oil market.
Saudi Arabia had also agreed in June to boost output, but held back over the summer, saying demand to absorb the supply wasn't apparent to warrant higher production. By September, Saudi Arabia pumped 100,000 bpd more to 10.502 million bpd than in August, and ramped up production to 10.63 million bpd in October.
Coinciding with these production gains was sharply higher output in the United States, which was underreported from at least August through the end of October. Suddenly, the United States was the world's largest oil producer, with the Energy Information Administration reporting domestic output at a record high 11.7 million bpd in early November.
U.S. waivers from sanctions on Iranian oil exports went to eight countries, including China and India, pressed prices down sharply. The waivers are for 180 days from the Nov. 5 effective date for the re-imposition of sanctions that is seen allowing about 900,000 bpd of Iranian oil to continue to flow through early May.
Oil speculators were already exiting long positions in October ahead of this news, capturing profits on the run-up in oil prices to four-year highs at the outset of the fourth quarter, while world economic growth was under scrutiny due to the U.S./China trade flap and a strengthening U.S. dollar, which made oil costs higher for countries around the globe since oil trades internationally in dollar denominations. These developments were hitting emerging economies with high debt loads priced in dollars especially hard, while their energy bills were rising. Recent data shows a slowdown in oil demand from emerging economies in September.
Expectations U.S. President Donald Trump and Chinese President Xi Jinping would reach an agreement when they meet Nov. 30-Dec. 1 in Argentina for the G-20 meeting dimmed over the weekend, with Beijing accusing the United States of not being flexible with their demands during the Asia-Pacific Economic Cooperation summit in New Guinea, which was attended by U.S. Vice President Mike Pence.
Fueling bearish concerns, Goldman Sachs Tuesday said it sees a slowdown in the U.S. economy in 2019. The Dow Jones Industrial Average tumbled 550 points in late trading following Monday's 400-point loss.
At settlement, Nymex January West Texas Intermediate were down $3.77 at $53.43 per barrel (bbl), the lowest settlement on the spot continuous chart since late October 2017. ICE January Brent settled down $4.26 at a one-year low settlement on the spot continuous chart at $62.53 bbl.
Nymex December ULSD futures tumbled 9.62 cents to a $1.9902 gallon 7-1/2 month low on the spot continuous chart. Nymex December RBOB futures settled down 8.7 cents at $1.4959 gallon, the lowest spot settlement since late June 2017.
Brian L. Milne can be reached at firstname.lastname@example.org
Copyright 2018 DTN/The Progressive Farmer. All rights reserved.