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Oil snaps losing streak amid renewed speculation of OPEC production cut

16 November 2018

Oil markets are being pressured by surging supply from OPEC, Russia, the United States and other producers and worries that a global economic slowdown could cut into energy demand.

Oil prices have plunged more than $20 a barrel since the start of October, when Brent crude rose to almost $87 a barrel and United States benchmark West Texas Intermediate (WTI) traded around $77.

Worldwide benchmark Brent crude oil futures were up 4 cents at $65.51 per barrel.

The Opec+, as the alliance is called, cut output by 1.8 million barrels of oil per day starting January last year up to May this year to lower oil inventories and shore up prices, which plunged to less than $30 a barrel in the first quarter in 2016. Brent has lost 25 per cent since peaking at a four-year high in early October. Kazakhstan said on Tuesday its oil output rose 4.8 per cent to 74.5 million tonnes in the first 10 months of 2018, equivalent to 1.82 million bpd.

"It's like a run on the bank", said Mr Phil Flynn, analyst at Price Futures Group in Chicago.

Why are oil prices falling?

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But while this argument at face value is persuasive, it's worth noting that less than a month ago most highly respected oil analysts were in a panic over the prospect of a global supply shortage due not only to the US sanctions in Iran but plummeting output from Venezuela and other countries and figures showing strong, not weak, demand in 2019 and beyond. During the week-ending November 2, the API reported that US crude stocks climbed by 7.8 million barrels. Prices have fallen so quickly, that the price of crude is now on the longest losing streak since March 1983 when futures first began trading.

The relative strength index (RSI) for both Brent and USA crude remained below 30, a technical level often regarded as signalling a market that has fallen too far.

OPEC - led by Saudi Arabia - along with Russian Federation have been burned by previous decisions to refuse production cuts.

USA bank Morgan Stanley said in a note on Wednesday that China's economic "conditions deteriorated materially" in the third quarter of 2018, while analysts at Capital Economics said China's "near-term economic outlook still remains downbeat". Oil prices should be much lower based on supply!

USA futures were on track to close lower for a record 12th straight session, with Tuesday's selloff the worst yet. The surge in USA production is contributing to rising stockpiles.

He urged the Federal Government to put in place measures to improve oil production, adding that OPEC will soon exempt Nigeria from crude oil cut imposed on the country and Libya since a year ago.

Oil snaps losing streak amid renewed speculation of OPEC production cut