The oil complex settled sharply lower on Tuesday after a bearish OPEC report exacerbated market concerns of oversupply and reduced demand.
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ICE January Brent settled $4.65 lower at $65.47/b and NYMEX December WTI was down $4.24 at $55.69/b at market close.
The selloff in oil markets began in the wake of OPEC revising downward its outlook for global oil demand growth while simultaneously revising upward its estimates for non-OPEC supply in its Monthly Oil Market Report. The report centralized market focus on lingering oversupply concerns that have taken prices lower in recent days.
“The OPEC report was really the icing on the cake that was building up here,” Again Capital partner John Kilduff said. “Russia and Saudi Arabia ramped up output ahead of sanctions that didn’t come to pass due to waivers, and the market has sort of tripped into oversupply in the near term.”
OPEC now expects global oil demand to grow by 1.5 million b/d to 98.79 million b/d in 2018, and by 1.29 million b/d to 100.08 million b/d in 2019, down 40,000 b/d and 70,000 b/d, respectively.
At the same time, non-OPEC supply growth was expected higher by 90,000 b/d from the last report to 2.31 million b/d in 2018, and up 120,000 b/d to 2.23 million b/d in 2019, putting non-OPEC supply at 59.86 million b/d in 2018 and 62.09 million b/d in 2019.
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The steep decline in prices sharply widened the contango in the WTI forward curve. At market settle, prompt-month WTI was trading at a $1.76/b discount to 12-month levels, up from a $1.54/b discount on Monday. After market close, this discount spiked to as much as $2.31/b before coming in slightly to around $2.15/b.
A strong US dollar was also weighing on both oil prices and the global demand outlook, analysts said.
“The rally in the dollar is having a one-two punch on the market,” Kilduff said. “It is continuing to hurt emerging markets badly, and not helping the demand side of the equation for once.”
The ICE US Dollar Index futures contract was trading at around $97.195 at market settle, down slightly from Monday but still at the highest level since June 2017. A stronger dollar is typically correlated with cheaper oil prices.
Products futures also moved sharply lower on the day. NYMEX December ULSD was down 9.31 cents at $2.0625/gal and NYMEX December RBOB settled 9.40 cents lower at $1.5427/gal.
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