Oil price resumed its downward trend after hitting the highest level since 2014 just six weeks back. In fact, U.S. crude dropped for the 12th consecutive session, marking the longest losing streak on record since 1983. Both the U.S. crude and Brent is in the bear territory, tumbling more than 27% and 24%, respectively, since their peak.
Notably, crude slipped below $60 a barrel for the first time since February and Brent under $70 a barrel on renewed concerns over supply and waning demand.
Inside the Pain
Bearish indicators have taken the front seat due to the barrage of negative news that point toward a period of prolonged low oil prices. First, oil peaked in October on concerns that U.S. sanctions on Iran would crimp supply but this trend reversed due to softer-than-expected Trump’s approach to Iran sanctions. This is because the United States granted temporary waivers to eight key buyers — China, India, Greece, Italy, Taiwan, Japan, Turkey, and South Korea — allowing them to continue importing oil from Iran.
Secondly, Trump negated the optimism over Saudi Arabia’s plans to combat oversupply fears by cutting OPEC production by around 1 million barrels per day from October levels. Additionally, U.S. shale production has been increasing rapidly. Per the latest EIA report, U.S. production astonishingly increased 400,000 barrels per day in the first week of November, pushing the output up to 11.6 million barrels per day.
The ongoing trade tariff dispute between Washington and Beijing, weakening eurozone economic growth and troubles in emerging market due to rising interest rates in the United States have sparked concerns over global economic growth. This is likely to weigh on the oil demand. Last month, the International Monetary Fund cut its global economic growth forecasts by 0.2% each for 2018 and 2019 to 3.7%.
Further, the OPEC has reduced its 2019 demand outlook for the fourth consecutive month, citing that growth in supplies from non-OPEC countries would outpace growth in demand, leading to widening excess supply in the market. The agency now forecasts the world’s appetite for crude will grow by 1.29 million barrels per day (bpd) in 2019, down 70,000 bpd from its projection last month. It expects output from non-member nations to increase 2.23 million bpd next year, up 120,000 bpd from its last forecast.
