Oil Set for Weekly Drop

Oil Set for Weekly Drop
Oil's poised for its biggest weekly drop in a month.

(Bloomberg) -- Oil’s poised for its biggest weekly drop in a month on concerns of weakening growth and doubts over whether the OPEC+ coalition’s output curbs will counter surging U.S. supply.

Futures in New York are on course for a 9.4 percent decline this week. Crude joined a sell-off in wider financial markets after an interest rate increase by the Federal Reserve and the threat of a U.S. government shutdown added to economic uncertainty. Meanwhile, investors remain skeptical that cuts agreed by OPEC and its allies are sufficient to avert a looming oil glut.

Crude’s heading for its worst quarterly loss in four years on fears the relentless growth in American shale will undermine efforts by OPEC and its partners to balance the market. At the same time, concerns over growth persist even as Fed Chairman Jerome Powell promised to be more cautious on raising rates next year, while a closely watched speech by Chinese President Xi Jinping offered no new reforms to stimulate the world’s second-largest economy.

“Demand is the bigger problem here because the OPEC+ alliance will trim output from January, while it’s doubtful whether the pace of shale production can be sustained at the current prices,” said Hong Sungki, a commodities trader at NH Investment & Securities Co. in Seoul. “Considering that oil prices remained weak until mid-2017 after OPEC agreed to cut production in 2016, it should again take some time for the market to see a balance.”

West Texas Intermediate for February delivery was at $46.42 a barrel on the New York Mercantile Exchange, up 54 cents, at 7:32 a.m. in London. The contract fell 4.8 percent to close at $45.88 on Thursday. Total volume traded was about 3 percent above the 100-day average.

Brent for February settlement rose 63 cents, or 1.2 percent, to $54.98 a barrel on London’s ICE Futures Europe exchange. The contract fell 5.1 percent to $54.35 on Thursday, closing below $55 for the first time in more than a year. Prices are down 8.8 percent for the week. The global benchmark crude traded at an $8.53 premium to WTI.

Oil’s slump persisted this week on broader market turmoil spurred by a plunge in global equities after the U.S. central bank lowered the forecast for 2019 growth to 2.3 percent from 2.5 percent in September. While policy makers scaled back the number of rate increases they see next year to two, from three in September, that’s still more than what investors expect.

Meanwhile, President Donald Trump insisted on funding a wall or other barrier along the southern U.S. border as tensions over a possible partial government shutdown intensified in the wake of his refusal to sign a stopgap spending bill. Without an agreement to fund the government by midnight Friday, nine departments including Homeland Security will close just before the Christmas holiday.

OPEC and its allies will give greater clarify on their strategy to stabilize oil markets on Friday by publishing a list of production cuts agreed by each country, according to people familiar with the matter. The figures to be published are in line with expectations, showing that participating nations will curb output by about 3 percent, mostly from October levels, delegates said.

In the U.S., inventories at Cushing, Oklahoma rose for a fourth consecutive week to the highest level since January, Energy Information Administration data showed Wednesday. While nationwide stockpiles shrank by 497,000 barrels, the drop was smaller than a 2.5 million-barrel decrease expected in a Bloomberg survey of traders.

To contact the reporter on this story: Heesu Lee in Seoul at hlee425@bloomberg.net To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Ovais Subhani



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