US crude futures plunge $3.77/bbl on stock market sell-off

HOUSTON (ICIS)–NYMEX WTI crude futures fell sharply on the first session for January 2019 delivery, in response to a massive round of length liquidation driven by a sell-off in global stock markets.

On Tuesday, the January WTI contract settled at $53.43/bbl, down $3.77.

Investors worrying about slowing economic and earnings growth as a result of the US-China imposition of tariffs and to the fading fiscal stimulus from tax cuts in the US triggered an aggressive round of selling.

A strong dollar, which erodes purchasing power in currencies used to pay for oil purchases, also contributed to the bearish mood.

Rising oil production in the US against slowing global energy demand is expected to outpace any production cuts to be agreed by OPEC/non-OPEC oil ministers gathering in Vienna, Austria on 6 December.

Monthly reports from various agencies such as OPEC and the International Energy Agency (IEA) have projected a potential supply glut for 2019 after Iran’s sanctions failed to remove as much oil as expected from the market after the US granted exceptions and waivers to eight countries.

US crude oil inventories from the American Petroleum Institute and the Energy Information Administration (EIA) are forecast to show a build for the ninth consecutive week.

Downside momentum penetrated technical support barriers, triggering sell stops and extending the losses.

Contracts volume was expected to exceed the daily average despite this being a short holiday week, a normally low-volume period.

The feeding frenzy across the energy complex drove West Texas Intermediate (WTI), the US benchmark, down to hit an intra-day low of $52.77/bbl, down $4.43 before attempting to rebound. Inter-month spreads remained in contango, or front-to-back weakness, which validates oversupply conditions until June 2019.

January ICE Brent bottomed out at $61.71/bbl, and settled at $62.53/bbl, down $4.26, but also continued to work lower in search of a bottom afterwards.

Top picture: A crude oil pump
Pictures source: Shutterstock