Crude Falls into Bear Market as Analysts Now Forecast $40/bbl Oil

Thursday November 8, 2018

Instead of the widespread predictions of $100 oil that dominated analytical thought up until a few weeks ago, $40 is now regarded as a more reasonable outlook in the wake of yet another drop in prices on Thursday for a ninth consecutive session.

Yet more signs of growing global supply caused West Texas Intermediate on Thursday to settle $1, or 1.6 percent, lower at $60.67, while Brent fell $1.33, or 1.9 percent, to $70.74 per barrel.

The declines come in the wake of the Energy Information Administration reporting the seventh consecutive weekly increase in U.S. crude stockpiles, and American output hitting an all-time high at 11.6 million barrels per day (bpd) last week, according to the EIA; the agency also forecast U.S. oil production to average 12.1 million bpd in 2019, an upward revision from its last projection.

This, combined with increased output from Saudi Arabia and Russia, caused Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, to remark, "All three of them are continuing to pump at record levels, that's been ... part of what's causing oil to move into a bear market.

"I think the market is grappling with some fundamental uncertainties: we don't know if we are oversupplied or under supplied."

Andrew Lipow, president of Lipow Oil Associates, had a clearer idea of the market's status: "oil supplies are going to be higher than the market anticipated, so it seems to me that the loss of Iranian supplies is only going to be between 1 and 1.2 million bpd, and the OPEC and non-OPEC producers have more than made up for that."

Additionally, concern about oversupply on Thursday was substantial enough for traders to ignore new trade data from China showing that the country's oil imports rose to an all-time high at 9.61 million bpd in October.

Given all these factors, Jim Cramer, host of CNBC's Mad Money, stated that U.S. oil prices are in a "ferocious" bear market: "Oil is collapsing guys, it's collapsing;I could make a case for the $40s here - I'm not kidding."

He added that investors betting on companies such as Exxon, Mobil, and Chevron are making a "bad call" because their rosy outlooks don't reflect the economic reality; he also stated his reasoning for continued price drops in simple terms: "Demand is slowing for oil and we're pumping like mad."

It's anyone's guess what will happen to prices in a market that's governed by sentiment instead of fundamentals if the Organization of the Petroleum Exporting Countries next month at its meeting in Vienna lives up to the statements it has been making of late and decides to return to production cuts in order to prevent a market glut.