Crude Prices Tumble Another 7%, Futures Contracts "In a World Of Pain"

Tuesday December 18, 2018

Tuesday for crude prices was a case of same old, same old: another substantial tumble, as fears intensified over the prospect of tepid demand in the New Year.

West Texas Intermediate settled down $3.64, or 7.3 percent, to $46.24, the lowest level since August 30, 2017; Brent fell $3.35, or 5.6 percent, to $56.26 per barrel.

John Kilduff, founding partner at Again Capital, warned that further losses may lie ahead, at least for the U.S. benchmark:"There's not a lot of support on the chart between $48 and $42; getting the close under $50 was very important on a technical basis, it just fed the negativity."

The fear driving Tuesday's session appears to be a carry over of Monday's news from Genscape that stockpiles at the storage hub in the Cushing, Oklahoma rose by more than 1 million barrels, coupled with data from the American Petroleum Institute suggesting that total U.S. crude stockpiles rose by 3.5 million barrels last week.

Moreover, traders remain jittery over the tumble in U.S. stock markets on Monday, with the Dow Jones Industrial Average and S&P 500 on pace for their worst December performance since the Great Depression in 1931.

Bob Yawger, director of futures with Mizuho, remarked, "There was a flood of supply-side news yesterday which, in combination with the demand destruction that the stock market slide implied, got us below $50, and that gave us a strong sell signal."

With sentiment rapidly overtaking reason, a new Bank of America Merrill Lynch December investor survey showed that more fund managers expect global growth to weaken over the next 12 months, the worst outlook in a decade,

Jeff Currie, head of commodities research for Goldman Sachs, said some investors suspect that something "bigger and more sinister" is happening in the global economy: "We're not just seeing it in oil and commodities, it's happening across the asset space; it's very rare that you see stocks, bonds, and commodities all down together."

One things is certain if crude prices remain stagnant, as far as investment bank Tudor Pickering Holt & Co. is concerned: in a note to clients it stated that U.S. drillers "will likely see harsher cuts to capital plans if WTI remains below $50."

To summarize the situation, Stephen Brennock, an analyst at PVM Oil Associates Ltd., pointed out in a note that oil, heating oil, and gasoline have all sunk to near or below technical support levels, and that futures contracts "are in a world of pain."

It's unclear whether Tuesday's price plunge has influenced an outlook expressed earlier this week by Francisco Blanch, head of global commodity and derivatives research at Bank of America: he told CNBC that "heading into next year, prices will trend towards $70 per barrel for Brent, towards $58-$59 for WTI, as long as global growth stays on trend," and he added that "we don't need to see super strong growth."