Oil prices drop amid rising USA stocks, OPEC uncertainty

Marco Green
December 6, 2018

The cartel is looking to stabilize global oil prices that have fallen over 30% since last month.

It's not unusual for Russian Federation to leave everyone guessing until the very last moment whether it is on board with a production cut-Moscow has done so in all previous meetings since its oil-market-management cooperation with Riyadh started two years ago in November 2016.

Bulls in the industry are hoping that OPEC and Russian Federation will come to their rescue and announce steep cuts in the production meeting in Vienna next month.

"Everybody is longing for reaching a decision that brings stability back to the market", he said. OPEC will also discuss policy with non-OPEC production giant Russian Federation. This increase in the country's oil inventory was fed by increasing oil imports.

OPEC's biggest problem is surging production in the United States, where output has grown by around 2 million bpd in a year to more than 11.5 million bpd. The meltdown in oil markets was due to a series of causes like soaring prices in summer and president Trump's vow to block Iran's oil exports.

Macro-focused and commodity trading advisory funds (CTAs) had bet on a further rally ahead of renewed US sanctions on Iran, but instead were caught wrong-footed after waivers were announced and USA production surged faster than expected. Energy stocks led the way down in the stock markets at Wall Street by contributing to 178 point decline.

The West Texas Intermediate futures dropped by 2.5% in trading in NY after the report by the US Energy Information Administration that revealed that American oil supplies had gone up for the 10th week in a row.

The price swings hit funds hard.

The West Texas Intermediate for January delivery fell 1.27 US dollars to settle at 50.29 dollars a barrel on the New York Mercantile Exchange, while Brent crude for January delivery fell 1.72 dollars to close at 58.76 dollars a barrel on the London ICE Futures Exchange.

"As sharp as the falloff has been, I think the market is poised to have as sharp a comeback", said Shawn Reynolds, portfolio manager of the VanEck Global Hard Assets Fund in NY. The forward Brent futures curve - the market's primary indicator of expectations for supply and demand - now signals a potential glut through mid-2019.

"We expect OPEC to follow suit and agree to a production cut in Vienna this coming Thursday", U.S. bank Goldman Sachs said in a note to clients.

"As for the need to limit production or not, I will not say anything about this for the time being".

Other reports by Click Lancashire

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