Oil Prices Tank As Supply Glut Fears Return
Oil prices collapsed on Tuesday for the second time in a week. During midday trading, WTI fell below $55 per barrel and Brent dropped below $65 per barrel. Both benchmarks are off more than $20 per barrel from their October highs.
“Oil prices are under pressure in the face of ample supply, falling stock markets and an increasingly gloomy economic outlook,” Commerzbank said on Tuesday.
Tuesday also saw a plunge in global equities, which is dragging down all sorts of different sectors, including oil prices. “I think you’re going to see a risk-off type of market,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors LLC, told Bloomberg. “It wouldn’t be surprising to see new lows being printed on oil” if crude stocks rise sharply. U.S. crude oil inventories likely rose by 3.5 million barrels last week, a sign that the surplus continues to build.
In fact, concerns about a supply glut are growing by the day. The IEA said in its November Oil Market Report that the global surplus could average 0.7 million barrels per day (mb/d) in the fourth quarter.
On the one hand, the meltdown in prices significantly increases the odds that OPEC+ will agree to curb supplies. Saudi Arabia has already announced production cuts on the order of 500,000 bpd for December. Russia has been non-committal, but it would seem likely that the group would agree to curb production to stop the slide in prices. After all, the originally supply cut announced at the end of 2016 was intended to put a floor beneath prices. The group wouldn’t want to see prices crash all over again.
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