Oil Futures Settle Lower Monday

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery traded on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled at their lowest valuations since the end of November on Monday, pressured by concern a slowing world economy would arrest growth in global demand for oil.

Initial joviality at the start of December in reaction to a trade truce between the United States and China that rallied equities and oil futures quickly gave way to pessimism, as investors cite worry that the U.S.-China truce will unravel and their trade dispute would escalate and hurt global trade flows and demand. That sentiment was triggered by the arrest of an executive with the Chinese technology firm Huawei for allegedly violating U.S. sanctions against Iran, with the firm also believed to be spying for Beijing.

Worries over the world economy were further fueled after British Prime Minister Theresa May postponed a vote in the British Parliament on her deal with the European Union over Britain's exit from the union, with expectations the vote would have failed miserably. May is expected to head back to Brussels in an effort to change the agreement to gain the support of her government, while the chances for a hard Brexit when Britain leaves the EU in March increasing. Britain's economy would be harmed by the exit without securing a trade agreement with the EU, according to the Bank of England.

The British pound tumbled on the increasing risk of a hard Brexit, while the U.S. dollar rallied to a better than one-week high in index trading. A strong U.S. dollar pressures West Texas Intermediate futures since oil trades globally in the greenback.

Inverted spreads in U.S. Treasuries last week and the death cross chart formation for the S&P 500 Index, when a short-term moving average moves below a long-term moving average, have inflamed concern over economic weakness, as has frequent selloffs in major equity indices. These worries have spilled into oil futures trading.

Several analysts note growth in the U.S. economy is slowing, but speculation the country is headed for recession are overblown. Monday, the Bureau of Labor Statistics showed for a second month that there are more job openings than unemployed in October. In their Job Openings and Labor Turnover report, BLS reported job openings at 7.1 million, with new hires at 5.9 million and separations at 5.6 million in October.

The JOLTs report, as it is known, followed BLS's nonfarm employment report for November released Friday, Dec. 7, showing job creation was less than expected at 155,000 in November after 237,000 jobs were created in October. The suggestion is the jobs report will prompt the Federal Reserve to take a slower pace in lifting interest rates, with tightening monetary policy a potential drag on economic growth.

The Federal Open Market Committee meets Dec. 18-19.

The selloff in oil futures today follows a rally on Friday triggered after 11th hour brinkmanship rendered a six-month production agreement between the Organization of the Petroleum Exporting Countries, Russia, and nine other non-OPEC oil producers. OPEC+ will cut 1.2 million barrels per day (bpd) of their production starting Jan. 1.

The market now awaits monthly projections for global oil supply and demand due out over the next three days. The Energy Information Administration will release its Short-term Energy Outlook near 12 p.m. EST Tuesday, and OPEC and the International Energy Agency will release their monthly forecasts Wednesday and Thursday mornings, respectively.

At settlement, NYMEX January WTI futures were down $1.61 at $51.00 per barrel (bbl), with ICE February Brent losing $1.70 to $59.97 bbl. NYMEX January ULSD futures fell 4.21 cents to a $1.8841 gallon settlement, with January RBOB futures tumbling 6.69 cents to $1.4189 gallon.

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

(BAS)

Copyright 2018 DTN/The Progressive Farmer. All rights reserved.