Monday Oil Markets: Crude Sinks 3% with Wider Energy Sector Correction Approaching

Bahrain has made a massive oil discovery. File Image / Pixabay

A 3 percent drop in U.S. crude prices on Monday was accompanied by strong evidence that seems to settle in favour of the bears a months-old analytical argument that prices will either escalate wildly in 2018 or suffer a long overdue correction.

West Texas Intermediate settled down $1.93, or 3 percent, to $63.01 per barrel, while Brent dropped $1.59 to $67.75 per barrel.

John Kilduff, founding partner at Again Capital, explained the numbers by remarking, "With nothing happening and no catalyst to keep it up here, you're starting to see this weak length coming out of the market.

"The anxiety just comes racing out of the market if nothing happens." 

Monday's market performance was also said to be influenced by reports that crude output in Russia rose in March to 10.97 million barrels per day (bpd) from 10.95 million bpd in February - this despite the former Soviet Union repeatedly stating the importance of the Organization of the Petroleum Exporting Countries' (OPEC) crude production cutbacks in getting rid of excess global inventory.

Yet more pressure on crude prices came from news that Saudi Arabia will cut prices for all crude grades it sells to Asia next month to reflect weaker prices for its Middle East benchmark Dubai crude; this caused Bob Yawger, director of energy futures at Mizuho, to say, "That is not really the kind of thing you do when you want to keep production cuts in place."

The analysis of Monday's trading naturally led to speculation of what will happen in the near term, and Wang Xiao, head of research at Guotai Junan Futures, pointed out that with China increasing tariffs by up to 25 percent on 128 U.S. products,"Increasing trade friction between China and the U.S. is likely to rock global markets and tarnish bullish sentiment in crude oil markets."

Unfortunately, there doesn't seem to be any opinions that would counter the grim outlook for oil: in addition to Russian output hitting an 11 month high (which that country's energy minister, Alexander Novak, downplayed by stating that "Russia reached the production cuts compliance of 93.4 percent"), it was reported that Bahrain, the smallest energy producer in the Persian Gulf, has discovered its biggest oil field since it started producing crude in 1932 - which presumably, if developed, will contribute to lower crude prices.

Bahrain discovered the offshore Khaleej Al Bahrain Basin deposit as it seeks to expand output capacity at its wholly owned Bahrain Field; it plans to provide additional details on Wednesday about the reservoir's size and extraction viability.

CNBC host Jackie DeAngelis summarized crude's state of affairs by describing the energy sector as "one of the biggest drags on the market today," with Concho Resources and Range Resources "leading the way lower, each down more than 6 percent."

She added that Exxon Mobil hit a 52 week low on Monday (down 2 percent) - all of which compelled CNBC to announce that the energy sector is in "correction territory."

Last week, Christian Malek, the head of EMEA oil and gas equity research at J.P. Morgan, echoed the sentiments of many experts by theorizing that U.S. shale alone will result in a price slide back to $50 by the end of next year: "Everything is gravitating towards $50 a barrel."