Oil prices collapse as OPEC sees production outpacing demand

Lloyd Doyle
November 15, 2018

As of last week, hedge funds and other money managers had reduced their long position in oil contracts to their lowest since August 2017.

"Crude oil futures succumbed to overwhelmingly bearish pressure amidst ... weaker market fundamentals", said Benjamin Lu, analyst at brokerage Phillip Futures in Singapore.

Both oil benchmarks are now trading firmly in bear market territory, having fallen more than 20 per cent from their 52-week highs.

OPEC and its partners are discussing a proposal to cut oil output by up to 1.4 million barrels per day (bpd) for 2019, three sources familiar with the issue said, to avert an oversupply that would weaken prices.

OPEC - led by Saudi Arabia - along with Russian Federation have been burned by previous decisions to refuse production cuts.

US futures were on track to close lower for a record 12th straight session, with Tuesday's selloff the worst yet.

Brent prices rose 0.6 per cent on Wednesday to $65.86 at 1115 GMT (6:13 a.m. EST). It now sits at levels not seen since March.


Saudi Energy Minister Khalid al-Falih on Monday had outlined a case for supply restraint, saying OPEC and its allies agreed that analysis showed a need to cut output next year by around 1 million bpd from October levels.

The sharp drop in prices was seen after US President Donald Trump tweeted same Monday that Saudi Arabia and OPEC should not cut production to reduce supply.

In 2019, world oil demand growth is forecast to grow by 1.29 mb/d y-o-y, about 70 tb/d lower than last month's projection, with total world consumption to reach 100.08 mb/d.

Yawger noted that the potential pullback in Saudi output has in part already been made up by the sharp bump in USA production, which reached 11.6 million bpd in the most recent week, a new record. OPEC crude output rose by 200,000 bpd in October to 32.99 million bpd, up 240,000 bpd on a year ago, as losses of 400,000 bpd from Iran and 600,000 bpd from Venezuela were easily offset by increases from others, such as Saudi Arabia or the United Arab Emirates.

Spot prices in September were significantly higher than those for later delivery, a structure known as backwardation that implies a tight market as it is unattractive to put oil into storage.

Anxious by a drop in oil prices and rising supplies, OPEC is talking again of reducing production just months after increasing it.

Other reports by Iphone Fresh

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