Investing.com – Not even a day.
That’s how long oil’s rebound lasted after Saudi pledges to cut supply turned out to be too little for the market’s liking.
Prices of West Texas Intermediate (WTI) and Brent crude both jumped as much as 2% at the start of Monday’s trade in Asia after Saudi Energy Minister Khalid al-Falih said at the weekend that the kingdom planned to reduce by half-million barrels its daily supply to world markets from December.
But as trading progressed to the European and New York sessions, the gains began fizzling on the notion that the cuts were inadequate to compensate for ramping U.S. crude production, standing at a weekly record of 11.6 million barrels per day.
At settlement, fell 26 cents to $59.93 per barrel, ending down for a 11th-straight day. The U.S. crude futures market has lost 22% since hitting four-year highs of nearly $77 in early October. On Friday, it fell to a 9-month low of $59.27.
settled down 6 cents at $70.12 per barrel. The U.K.-traded global oil benchmark has lost about 20% from an October peak of nearly $87. On Friday, it sunk to a 7-month low of $69.15.
“I feel like the market has lost its bullish mojo and will need U.S. draws to get excited again and perhaps get these shorts out of the market,” Scott Shelton, energy broker at ICAP (LON:) in Durham, N.C., said, pointing out that overall long positioning in WTI was at two-year lows.
While the path of least resistance in oil remained lower, Shelton said the Saudi pledge to cut “has taken the extreme downside out of the market”.
“There could be shorts looking to cover as the tail risk to the downside has ended at least until Dec 6,” he added.
Dec. 6 is when OPEC holds its all-important policy-setting meeting in Vienna, where production cuts will most likely top the agenda.
For an oil rally to last, traders are believed to be looking for cuts of at least 1.0 million bpd from OPEC to offset higher supplies resulting from generous US waivers on Iranian oil sanctions.
Falih, the Saudi Energy Minister, did say on Monday that technical analysis by OPEC and its allies showed the need for a million barrels to be taken off the market.
Yet, the so-called Joint OPEC and Non-OPEC Market Monitoring Committee meeting the minister chaired in Abu Dhabi at the weekend did not issue such a resolution.
This raised doubts on whether others at the meeting, including non-OPEC member Russia, were keen to cut. The Saudi reductions might also be more seasonal than anything, with Falih acknowledging December to be a slow period for demand.
The market’s worries about oversupply was voiced by Bank of America Merrill Lynch (NYSE:) in its latest oil note entitled “U.S. Energy Independence”.
“The bigger question is how OPEC+ will factor in the US shale phenomenon this time around,” the Wall Street bank said.
“With oil prices falling by 20% from the highs in recent weeks, the next OPEC+ decision will have to factor in: (1) the massive 2+ bpd year-on-year surge in U.S. output and (2) the negative demand impact of the ongoing trade tensions.”
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Source: Investing.com
