Crude Prices Slide to 2018 Low on Doubts of OPEC's Cutback Efficacy

Putin agrees with Trump that lower oil prices suit him just fine. File Image / Pixabay

New-found doubt that the Organization of the Petroleum Exporting Countries (OPEC) may not be able to agree upon output cuts, combined with U.S. crude inventories rising for a 10th straight week, caused oil prices on Wednesday to drop yet again, this time reaching 2018 lows.

West Texas Intermediate fell $1.27, or 2.5 percent, to $50.29, the lowest price since early October 2017; Brent was down $1.05, or 1.7 percent, at $59.16 per barrel.

CNBC noted that "Crude's drop since October is on a par with the 2008 price crash and steeper than that of 2014-2015, both of which prompted OPEC to agree output curbs to support the market."

The doubt over OPEC, which for some jaded observers may have seemed long overdue, was caused by Saudi Arabia stating on Wednesday it will not cut output alone and Nigeria stopping short of agreeing to a cutback; Stephen Brennock, oil analyst at PVM, stated the obvious, that the outcome of OPEC's Vienna meeting next week "remains clouded by uncertainty."

As for U.S. stockpiles, they exceeded predictions by rising 3.6 million barrels in the week to November 23.

Gene McGillian, vice president of market research for Tradition Energy, also covered familiar territory by remarking, "The market continues to come under pressure due to worries of a supply glut and slowing global demand growth.

"It's hard to get more bearish.....after we wiped out more than 30 percent of our value in the last two months."

It's no secret that all of this would be music to the ears of U.S. president Donald Trump, who has lobbied - and schemed - long and hard to give American motorists a break at the gas pump; and apparently siding with him on Wednesday was Russia's president Vladimir Putin, who told an investment conference in Moscow that current oil prices are "absolutely fine" for his country and that they are "balanced and fair.

He added, "This is effectively an achievement of Saudi Arabia and the crown prince, he was the initiator of this work; it led to positive results."

As was the case when analysts were wringing their hands over their recent prediction of a market tightening, the possible nightmarish consequences of a world swimming in oil seems largely to be their concern; by contrast, those who would be most affected by any outcomes are taking things in stride, and earlier this week it was admitted by Capital Economics that even if prices were to plunge as low as $40, it wouldn't significantly strain the economies of the U.S. Gulf states and its energy operators.