Oil headed for its first annual decline since 2015, slumping more than 20 per cent in a turbulent year that saw fears of scarcity turn to expectations of a surplus.
Crude surrendered early gains on Monday and fell as much as 1.3 per cent in New York, on track for the worst quarterly drop since the last oil market crash began four years ago. There’s growing concern the U.S.-China trade dispute and tightening Federal Reserve monetary policy are weakening global demand. Five American manufacturing indexes all dropped in December, the first such across-the-board decline in two years.
Highlighting the muscle of U.S. crude drillers, stockpiles at a key storage hub in Oklahoma probably rose 1.2 million barrels last week, according to a TheNewsEditorial survey of analysts released Monday. While U.S. President Donald Trump touted progress in trade talks earlier in the day, a key manufacturing indicator also showed Chinese factory activity contracting again.
“You have activity in the world’s second-biggest oil consumer declining,” said Bob Yawger, director of futures at Mizuho Securities USA. U.S. oil exports “have saved the day recently but if that’s not going to continue and you’re going to build storage, that’s not a good sign.”
West Texas Intermediate for February fell 39 cents to US$44.94 a barrel at 10:55 a.m. on the New York Mercantile Exchange. Prices are on track for a 26 per cent decline this year after climbing about 60 per cent in the previous two years. Total volume traded Monday was about 34 per cent below the 100-day average.
Brent for March settlement declined 28 cents to US$52.93 on the London-based ICE Futures Europe exchange. The global benchmark crude has lost about a third of its value this quarter. It’s trading at a premium of US$7.61 to March WTI.
Crude’s moves have been amplified by gyrations in equity markets, which have propelled an oil-price volatility gauge to more than double over the past three months.
“We are most likely past the peak of this long economic uptrend,” said analysts at JBC Energy GmbH in Vienna.
Oil jumped to a four-year high in early October on concern that renewed U.S. sanctions on Iran’s oil exports would tighten supply. But Trump’s surprise decision to grant waivers to many buyers pushed prices into a bear market within weeks.
“Trump has reigned as the ultimate controller of oil prices this year because everything from sanctions against Iran, the trade war with China and even tensions with Saudi Arabia, he’s been involved,” said Sungchil Will Yun, a commodities analyst at HI Investment & Futures Corp. “While prices won’t fall further from here, the pace of increase will also be quite gradual next year.”
OPEC and its partners including Russia responded to the downturn earlier this month with a promise to cut 1.2 million barrels a day of output starting January. Estimates from consultants JBC Energy on Monday showed they’ve already started to make good on that pledge as Saudi Arabia takes the lead in restricting production.
But OPEC faces a formidable challenge from American drillers that are pumping at record levels.
More than 100 additional oil rigs have been deployed across the U.S. this year, with overall crude production topping 11 million barrels a day. Oil stockpiles at the U.S. storage hub in Cushing have surged to the highest level since January, while nationwide inventories are near a one-year high, according to Energy Information Administration data.
With assistance from Heesu Lee