Oversold Oil Advances From New Lows

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Intercontinental Exchange Brent futures posted sharp gains Monday amid oversold market conditions, but are still down from pre-Thanksgiving Day, following Friday's price plunge to new lows.

Goldman Sachs weighed in on the oil market Monday, indicating in a note that investors should buy at current price valuations, suggesting the oversold market has limited downside.

Nymex January West Texas Intermediate slid to a $50.10 barrels (bbl) 13-month low on the spot continuation chart overnight, with WTI futures down $26.80 or 34.9% from an early October four-year high to the low. ICE January Brent broke below $60 bbl to trade at a $58.41 13-month spot low on Friday, with the spot-month contract down $28.33 bbl or 32.7% from a four-year high traded Oct. 3.

Monday's upside push comes ahead of the G-20 meeting in Argentina on Friday and Saturday (11/30-12/1) when U.S. President Donald Trump will meet with China's President Xi Jinping, with the leaders of the world's two largest economies expected to discuss trade tensions. The United States has levied tariffs on an array of Chinese imports, and has threatened to add to the number of products if China doesn't meet several U.S. demands. China has responded with tariffs on U.S. imports, with the end of week meeting seen going a long way in either soothing worries over the global economy or fanning those concerns. Trump remained optimistic that a deal with China could happen.

The U.S.-China trade dispute has been a key factor in lowering expected world economic growth rates looking into 2019, with a slumping economy seen slowing demand for oil.

Another factor is U.S. interest rates, with the Federal Reserve earlier this month seen lifting the federal funds rate 25 basis points to 2.25% to 2.5% during their Dec. 18-19 meeting. Higher borrowing costs would also slow economic growth, while a climbing U.S. interest rate usually strengthens the dollar that would spread pain for economies with debt tied to the U.S. currency. A stronger dollar also pushes the acquisition cost for crude oil higher for buyers outside the United States since oil trades globally in the U.S. dollar denomination, which would weigh on WTI futures. The U.S. dollar reached a 17-month high in November.

The oil ministers from Russia and Saudi Arabia are also scheduled to attend the G-20 meeting, with the two ministers expected to discuss oil production ahead of the Dec. 6 meeting in Vienna by the Organization of the Petroleum Exporting Countries and 10 non-OPEC oil producers led by Russia. The Saudis were initially pushing for a 1.4 million barrels per day (bpd) production cut, but reports indicate Russia is not interested in reducing its output while Trump loudly complained over the plans.

Now, Saudi Arabia and OPEC allies are seen pushing for their two-year Vienna agreement set for expiration at year end to continue into 2019. The Saudis reached production at nearly 11.0 million bpd briefly this month before falling back, 1.0 million bpd above its allotted quota under the agreement.

Nymex January WTI futures settled up $1.21 at $51.63 bbl, with the ICE January Brent contract ending $1.68 higher at $60.48 bbl. NYMEX December ULSD futures settled at $1.8930 gallon for a 1.68 cents gain and December RBOB futures rallied 5.13 cents to a $1.4426 gallon settlement.

Brian L. Milne can be reached at brian.milne@dtn.com


Brian Milne