Oil prices fall as investors wary of trade slowdown

Andrew Cummings
November 2, 2018

Oil prices edged lower on Monday, with futures on track for the worst monthly performance since mid-2016, after Russian Federation signaled that output will remain high and as concern over the global economy fueled worries about demand for crude.

Benchmark Brent crude oil was down $1.65 a barrel, or 2.1 percent, at $75.69 by 2:23 p.m. ET. Data from the InterContinental Exchange and the U.S. Commodity Futures Trading Commission shows combined bullish holdings of Brent and U.S. crude futures and options have fallen by a third in four weeks, to around 572 million barrels.

Despite the gains and calmer financial markets early on Monday, sentiment among investors remained cautious after hefty losses last week.

"The bears seem well in control of the market and there are many reasons to justify their actions", said Hussein Sayed, chief market strategist at futures brokerage FXTM.

U.S. President Donald Trump said on Monday he thinks there will be "a great deal" with China on trade but warned that he has billions of dollars worth of new tariffs ready to go if a deal is not possible. "There's probably an element of truth to that", said Bob Yawger, director of futures at Mizuho in NY.

There were also signs of a slowdown in global trade, with rates for dry-bulk and container ships - which carry most raw materials and manufactured goods - coming under pressure.

While ongoing trade tensions between the world's two largest economies stoke concerns over global energy demand, traders continue to watch how much Iranian supply will be taken out of the market when USA sanctions hit early next month.

The plan to sell oil to private companies on the energy exchange was floated back in July by first vice-president Eshaq Jahangiri with the aim of "defeating America's efforts.to stop Iran's oil exports".

The next date of offering crude oil at IRENEX has not been announced yet.

Current political situation in Germany, Italy and the United Kingdom are also weighing on crude oil.

That's down from around 15 a year ago, and from 40 in mid-2016 during the peak of the supply glut.

In North America, however, there is no oil shortage as United States crude oil production has increased by nearly a third since mid-2016 to around 11 million barrels per day.

Production is set to rise further.

The International Energy Agency (IEA) on Tuesday said high oil prices were hurting consumers and could dent fuel demand at a time of slowing global economic activity.

"What is happening today is a lie that U.S. policymakers are telling the people of the world and the Americans that Iran's oil supplies should be replaced by Saudi Arabia so that oil prices would not rise", he said.

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