Oil and stocks fall in tandem

Oil prices fell about 3% yesterday, hitting their lowest in more than a year on worries about oversupply and the outlook for energy demand as a US interest rate rise knocked stock markets.

Brent crude fell $1.53 to $55.71 a barrel, a 2.7% loss, while the American benchmark — US West Texas Intermediate (WTI) crude fell $1.55 to $46.62 a barrel, a 3.2% loss.

Brent earlier hit a session low of $54.64 a barrel, the weakest since mid-September 2017, while WTI sank to $45.82, near its lowest since late August 2017.

Equities dropped worldwide after the Federal Reserve raised US rates and maintained most of its guidance for additional hikes over the next two years, dashing investor hopes for a more dovish policy outlook. US stock markets continued their decline yesterday, dragging oil prices lower.

“It’s still falloff after the Fed,” said Phil Flynn, analyst at Price Futures Group. “There’s some doubts in the market about the outlook for the economy, which is weighing on the demand side of the equation.” Both major oil futures contracts have fallen more than 35% from multi-year highs reached at the beginning of October.

Fatih Birol, head of the International Energy Agency, said he does not expect a sharp increase in oil prices in the short-term, unless there are geopolitical problems.

The Organisation of the Petroleum Exporting Countries (Opec) and other oil producers including Russia agreed this month to curb output by 1.2 million barrels per day (bpd) in an attempt to drain tanks and boost prices.

But the cuts will not happen until next month, and production has been at or near record highs in the US, Russia and Saudi Arabia.

“The market remains sceptical of the ability of Opec and Russian oil producers to rein in runaway output,” said John Kilduff, a partner at Again Capital Management in New York.

This has become a ‘show-me’ market — assertions or commitments to cut are not enough right now.

Opec plans to release a table detailing voluntary output cut quotas for its members and allies such as Russia in an effort to shore up prices, Opec secretary-general Mohammad Barkindo said.

Saudi Energy Minister Khalid al-Falih said he expected global oil stocks to fall by the end of the first quarter.

Reuters