Crude Drops 7% as Oil Markets Face "Unprecedented" Uncertainty

The losses may spur the Saudis to pump full-out

Tuesday's crude trading seemed to dispel widespread notions of the previous session's modest price gains being the start of a recovery, with U.S. crude diving to its lowest level in over a year due to mounting concerns over a global slowdown in economic growth.

West Texas Intermediate ended Tuesday's session down $3.77, or 6.6 percent, at $53.43 per barrel, while Brent fell $4.26, or 6.4 percent, to settle at $62.53 per barrel.

The losses were said to be a direct reaction to the S&P 500 index on Tuesday hitting a three-week low, as well as the slump in global stock markets over the past two months; also, news that U.S. president Donald Trump said his country would remain a partner of Saudi Arabia even though "it could very well be" that Saudi crown prince Mohammed bin Salman had knowledge of the killing of Jamal Khashoggi eased concerns about potential oil supply disruptions.

While Trump and emerging but fragile economies such as India would presumably welcome the lower crude prices, Andrew Lipow, president of Lipow Oil Associates, worried that "The next fear is that as the equities fall as a reflection of slowing economic growth, that's going to depress any growth in oil demand."

However, the current prices may be short-lived, according to Anthony Grisanti, founder and president of GRZ Energy: "If the Saudis weren't going to cut production, they certainly are now after the price that happened today, and if the Russians weren't on board with that, they certainly are now."

The notion in some quarters that it's virtually impossible to predict with any certainty where crude will go next was reinforced by Fatih Birol, executive director of the International Energy Agency, who on Tuesday said  "We are entering an unprecedented period of uncertainty in oil markets" due to geopolitical instability and a fragile global economy.

He added, "We have very thin production capacity left in the world, in a world which is becoming more dangerous."

If nothing else, Tuesday's substantial crude price losses make a prediction on Monday by Mark Fisher, founder and CEO of MBF Clearing, seem implausible: he told CNBC that the market is close to bottoming out, and that "there's a limited downside: if you ask me what the next $10 is, is it up or down? I think it's up."