Oil drops below $65 on Fed outlook and ample supply

Oil’s drop came despite a bigger-than-expected decline in US inventories and a fall in OPEC production in July. (Reuters/File)
Updated 01 August 2019

Oil drops below $65 on Fed outlook and ample supply

  • ‘There is a lot of oil out there. US output is growing strongly’

LONDON: Oil dropped 2 percent to below $65 a barrel on Thursday, declining for the first time in six days, after the US Federal Reserve dampened hopes for a string of interest rate cuts and as rising US output helped keep the market well supplied.

The Federal Reserve reduced rates on Wednesday, but against expectations the head of the US central bank said the move might not be the start of a lengthy series of cuts to shore up the economy against global economic weakness.

“A relatively upbeat mood in risky assets took a spectacular U-turn after last night’s Fed decision,” Tamas Varga of oil broker PVM said. “The dollar started to strengthen and equities and oil went into a kind of meltdown mode.”

A rising dollar makes oil more expensive for holders of other currencies and tends to weigh on commodities priced in the US currency. The dollar hit a two-year peak against the euro on Thursday after the Fed decision.

Oil’s drop came despite a bigger-than-expected decline in US inventories and a fall in OPEC production in July, typically bullish drivers for prices. But US output rose in a market that analysts say is well supplied.

“Supply is plentiful and demand growth is showing signs of weakening globally because of trade conflicts, Brexit and other events that tend to potentially weaken economic growth and, hence, oil demand,” Victor Shum, senior partner at IHS in Singapore, said.

“There’s a lot of oil out there. US output is growing strongly.”

OPEC and partners including Russia, an alliance known as OPEC+, have been curbing output this year to support the market.
In July, OPEC production revisited a 2011 low.


Oil slumps more than 4% on coronavirus fears

Updated 28 February 2020

Oil slumps more than 4% on coronavirus fears

  • Traders fret about impact of spreading virus on crude demand, particularly from China

LONDON: World oil prices tumbled by more than 4 percent on Thursday, as traders fretted about the impact of spreading coronavirus on crude demand, particularly from key consumer China.

Brent oil for April delivery tanked almost 4.2 percent to $51.20 per barrel, while New York’s WTI crude for the same month dived nearly 5 percent to $46.31.

“Concerns that the virus will prompt a global slowdown, weaker consumer confidence and reduced travel has raised concerns about lower demand, weighing on prices,” said CMC Markets analyst Michael Hewson.

Investors are growing increasingly fearful about the economic impact of the new coronavirus or COVID-19 outbreak. 

The virus continues to spread meanwhile, with Brazil reporting Latin America’s first case, and Denmark, Estonia, Greece, Georgia, Norway and Pakistan following suit.

Around 2,800 people have died in China and more than 80,000 have been infected. There have been more than 50 deaths and 3,600 cases in dozens of other countries, raising fears of a pandemic.

The spread of the virus to large economies including South Korea, Japan and Italy has raised concerns that growth in fuel demand will be limited. 

Consultants Facts Global Energy forecast oil demand would grow by 60,000 barrels per day in 2020, a level it called “practically zero,” due to the outbreak.

US President Donald Trump sought to assure Americans on Wednesday evening that the risk from coronavirus remained “very low,” but global equities resumed their plunge, wiping out more than $3 trillion in value this week alone.

“The negative price impact would intensify if the coronavirus were declared pandemic by the World Health Organization, something that looks imminent,” said PVM Oil Associates analyst Tamas Varga.

“The mood is gloomy and the end of the tunnel is not in sight – there is no light ahead just darkness. Not even a refreshingly positive weekly US oil report was able to lend price support.”

Gasoline stockpiles dropped by 2.7 million barrels in the week to Feb. 21 to 256.4 million, the Energy Information Administration (EIA) said on Wednesday, amid a decline in refinery throughput. Distillate inventories fell by 2.1 million barrels to 138.5 million.

US crude oil stockpiles increased by 452,000 barrels to 443.3 million barrels, the EIA said, which was less than the 2-million-barrel rise analysts had expected.

The crude market is watching for possible deeper output cuts by the Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+.

“Oil is in freefall as the magnitude of global quarantine efforts will provide severe demand destruction for the next couple of quarters,” said Edward Moya, senior market analyst at OANDA. 

“Expectations are growing for OPEC+ to deliver deeper production cuts next week.”

OPEC+ plans to meet in Vienna on March 5-6.