WASHINGTON, D.C. (DTN) -- New York Mercantile Exchange nearest delivered oil futures and Brent crude on the Intercontinental Exchange plunged to new lows Tuesday morning, with West Texas Intermediate futures slumping to a 15-month low overnight after settling below the psychological price level of $50 barrel (bbl) on Monday, as traders' concerns over supply and the world economy deepen.
Aggressive selling comes ahead of the January WTI futures contract expiration Wednesday afternoon, while WTI traded down $1.00 near $48.88 bbl, near a $47.84 15-month low on the spot continuation chart. ICE February Brent crude lost $1.03 to trade near $58.60 at the time of reporting. Nymex January ULSD futures contract fell 2.3 cents to $1.8040 after trading at a $1.7715 14-month low on the spot continuous chart, despite the official beginning to winter at the end of the week. Nymex January RBOB futures shed 2.51 cents to $1.3877 gallon.
Despite only 11 days ago the Organization of the Petroleum Exporting Countries and ten non-OPEC producers led by Russia reached an agreement to cut 1.2 million barrels per day (bpd) from January through June 2019, crude futures are taking another leg down.
This suggest investors see the OPEC deal as insufficient to prevent an oversupplied global oil market next year with supply already building. The International Energy Agency last week said commercial inventory held by the 35 country bloc International Energy Agency moved above the five-year average in October for the first time since March.
OPEC cuts also come from a high production rate. From May through October, Saudi Arabia, Russia, United Arabs Emirates and Iraq have collectively added 1.6 million bpd of new production, while U.S. crude production averaged nearly 1.0 million bpd above year ago during the four weeks ended Dec. 7 at 11.675 million bpd, up 20.3%. Monday afternoon, the Energy Information Administration projected tight shale oil production in seven key U.S. producing regions would average 8.166 million bpd in January, up 134,000 bpd or 1.7% from December.
WTI, Brent futures selloff comes amid structural weakness across equities markets in the final weeks of the year, although the Dow Jones Industrial Average is up more than 200 points Tuesday morning after losing 1,000 points during the two previous sessions.
The U.S. dollar plunged to a one-month low in early trading Tuesday after reaching a nearly 18-month high on Friday, suggesting currency traders are positioning for an unexpected decision during the two-day policy meeting by the Federal Open Market Committee Tuesday and on Wednesday. The broad market expectation is that the Fed will hike the federal funds rate by 25 basis points to a 2.25% by 2.50% range, with the recent sell-off in equities seen as a signal for the central bank to hold interest rates flat.
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