Panic at stock markets: oil price breaks psychological barrier

Panic at stock markets: oil price breaks psychological barrier

Oil prices fell 4% today after reports of swelling inventories and forecasts of record U.S. output combined with a sharp sell-off in stock markets as the outlook for global growth deteriorated.

WTI oil dropped $2.04 (4.1%) to a low of $47.84, its weakest since September 2017, before recovering to around $48.55 by 1140 GMT.

Brent crude lost $2.41 (4.0%) to $57.20, a 14-month low. It last traded around $58.21, down $1.40.

Both crude oil benchmarks have shed more than 30% since early October due to swelling global inventories, Reuters reported.

World stock markets tumbled today as fears about a slowing global economy gripped investors, just as the U.S. Federal Reserve looked set this week to deliver its fourth interest-rate hike of the year.

Oil production from seven major U.S. shale basins is by the year-end expected to climb to more than 8 million bpd for the first time, the U.S. Energy Information Administration said.

Inventories at the U.S. storage hub of Cushing, Oklahoma, delivery point for the oil futures contract, rose more than 1 million barrels from Dec. 11 to 14, traders said, citing data from market intelligence firm Genscape.

The U.S. has surpassed Russia and Saudi Arabia as the world's biggest oil producer, with total crude output climbing to a record 11.7 million bpd.

A senior analyst of 'Uralsib', Alexei Kokin, speaking to Vestnik Kavkaza, noted that nobody predicted such a decline in prices. "It is associated with a significant drop in the U.S. market yesterday, as well as indirectly with an unexpected message about the growth of inventories at the U.S. storage hub of Cushing. Therefore, for now the market is responding to these surprises," he said.

The economist warned if world markets continue to decline, such decline in prices may happen again. "Then they will start the revision of demand forecasts around the world, respectively, the oil balance will again change towards oversupply," Alexey Kokin pointed out.

Deputy director of energy policy of the Institute of Energy and Finances, Alexey Belogoriev, on the contrary, pointed to the predictability of this decline in prices. "The decision made at the OPEC + meeting, on the one hand, met the expectations of market participants, but, on the other hand, turned out to be quite moderate. At the price level of $60 per barrel, this moderate option was already priced, and the current decline was quite expected, since no growth factors emerged during this time. There are general expectations of oversupply next year. But there is support for oil prices neither from fundamental factors, nor from geopolitics, nor from financial markets, so they may drop," he warned.

"It is important to understand that average annual oil prices are important in the first place. The daily and even weekly price movement in a certain corridor, now it is $50-65 per barrel, is not critical for average annual prices. Next year, the average annual Brent oil price will be about $60 a barrel," Alexei Belogoryev concluded .