Oil price drops amid fears over demand

Jeannie Matthews
November 14, 2018

But since May, Opec+ have ramped up output while at the same time the USA continued to grow its oil production, which reached a record of 11.6 million bpd earlier this month. The decline in prices continued last week after the United States said it would let eight countries keep importing Iranian oil.

Global benchmark Brent crude oil futures had yet to trade.

Saudi Energy Minister Khalid al-Falih said on Monday that Opec agreed there was a need to cut oil supply next year by around one million barrels per day from October levels to prevent oversupply.

In its monthly report, Opec said world oil demand in 2019 would rise by 1.29 million barrels per day (bpd), 70,000 bpd less than predicted last month and the fourth consecutive forecast cut. Hedge funds and other money managers have reduced their long position in oil contracts to their lowest since August of 2017 last week.

Oil markets are being pressured from two sides: a surge in supply and increasing concerns about an economic slowdown.

Both crude benchmarks have fallen more than 20 per cent since peaking at four-year highs in early October.

President Donald Trump has tweeted that they shouldn't cut production, setting up a standoff between the USA administration and OPEC before it meets in Vienna on December 6.

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While OPEC and its allies including Russian Federation had been pumping more in anticipation of Iran's exports falling to zero, de facto group leader Saudi Arabia now says the producers should reverse about half the output increases they made earlier this year.

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.

Oil markets remained on a weak footing on Wednesday after a 7 percent slump the previous session, with surging supply and expectations of faltering demand pressuring crude prices.

A lift in USA sanctions on Iran, increased shale oil production coupled with predictions of reduced world demand for oil has kept prices in trenches. In July, Trump called the organization a "monopoly", warning on Twitter that "gas prices are up & they are doing little to help".

Brent dropped US$3.25 a barrel, or 4.5%, to a low of US$66.94 as of 10.40am EST (1540 GMT).

The latest drop in price comes after US President Donald Trump tweeted on Monday that he hoped there would be no oil output reductions, after Saudi Arabia said on Sunday that Opec was considering cutting supply next year.

Riyadh indicated on Monday it was on course to ignore the USA president's wishes at OPEC's next meeting due in December because it saw a need to reduce OPEC output by a collective one million barrels per day during 2019.

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