Once more, traders on Monday demonstrated their lack of faith in the Organization of the Petroleum Exporting Countries (OPEC) to avert a global glut by causing U.S. crude to drop below $50 for the first time in a year, with prices on track for a third straight monthly decline.
West Texas Intermediate fell $1.32 to settle at $49.88 per barrel, while Brent dropped 67 cents to $59.61, in reaction to Genscape Inc. reporting a 1 million barrel rise in inventories at the Cushing, Oklahoma storage hub between December 11 and 14, as well as the U.S. Energy Department forecasting higher shale output in 2019.
Monday's declines were exacerbated by the S&P 500 hitting a 14-month low as investors anticipated an interest-rate hike that could slow the economy.
Pavel Molchanov, Raymond James & Associates Inc.
There is naturally some skepticism
Pavel Molchanov, an analyst at Raymond James & Associates Inc., noted, "There's always a question mark over to what extent the OPEC countries and Russia will or will not fulfill their promises" - a reference to the cartel's vow to cut back production and deflate what is widely perceived to be another global supply surplus.
Molchanov added, "There is naturally some skepticism."
Phil Flynn, senior market analyst at Price Futures Group, said of the Cushing disclosure, "it's definitely pointing to the concern that there's more supply and demand is weakening" - indeed, China's oil refinery throughput in November fell from October, suggesting an easing in oil demand, and business growth in France and Germany is slowing.
Monday's trading doldrums were capped by Suhail al-Mazrouei, energy minister for the United Arab Emirates, stating the obvious: the global market is "correcting."
He went on to remark at an event in Dubai that he expects "everyone" to cut oil supply under the OPEC agreement.
If nothing else, Monday once again proved wrong the predictions of crude market analysts, who spent most of last week insisting that prices had bottomed out, case in point: Joseph Cusick, president of The Cusick Group, who told Bloomberg that, "I think $50 is the line in the sand right now; I would be surprised if it broke through there."