This is another negative week for oil amid a generally negative market sentiment and fortifying fears that oversupply is imminent in Q1 2019, according to prominent industry site oilprice.com.
“Bullish factors that include supply disruptions in Lybia taking out some 400,000 bpd of production and the OPEC+ production cuts (1.2 million bpd from January 2019) were overwhelmed by concerns regarding US crude production volumes, an unexpected US commercial crude stock buildup (API announced a 3.45 MMbbl increase) and a global economic slowdown,” said OilPrice.com.
On Tuesday alone, WTI prices dropped 7%, while Brent decreased by 6% percent in one single day, after oil prices crashed to a one-year low on Monday, making it one of the worst oil trading days of 2018.
Oil prices were 4% lower on Monday.
This is making a lot of people nervous, especially in the Gulf.
Long-term price woes?
At a recent Dubai conference, Arab Strategy Forum, Gulf states were told to brace for long-term low oil prices and that an expected global economic slowdown starting next year will dampen demand for oil.
“A cooling of the global economy will reduce demand for oil, which coupled with rising competition from renewable energy sources and shale crude will lead to low oil prices,” say experts.
Signs of an “economic war” between the United States and China, the world’s largest economies, and an expected global economic slowdown starting next year will dampen demand for oil, the experts told a conference in Dubai.
“Oil prices will remain low for a long period,” former Lebanese minister of economy and trade Nasser Saidi told the forum.
“This will negatively impact growth in the whole (Arab) region … The whole area will face a financial and economic crisis,” he said.
The GCC earn more than 80% of their revenues from energy.
Oil prices had a four-year peak at over $85 a barrel last October.
World Bank senior vice president Mahmoud Mohieldin warned that economic growth in the GCC region was still dependent on oil price movements.
“Now, we are at a time of uncertainty … Growth in Gulf states is forecast at three percent next year … but this could be revised,” following the drop in oil prices, Mohieldin said.
“We think that the OPEC deal will have an overall negative impact on GDP (gross domestic product) growth in the Gulf over the coming quarters,” London-based consultancy firm Capital Economics said last week.
UBS wealth management comment:
“The Brent crude oil price has fallen to a post-October 2017 low, while WTI now trades at August 2017 levels. Economic growth concerns, along with systematic selling – momentum trading and the clearing of futures positions ahead of the end of the year – are probably fueling this latest price decline. That the OPEC+ production cuts only come into force in January is not helping sentiment at the moment either.”
“While trade war fears continue to unsettle the market, Chinese crude imports exceeded 10mbpd for the first time in November and could remain above that mark this month as well. The latest available data suggests that oil demand by China – the second largest consumer after the US – is still strong.”
“If prices remain at these levels for a sustained period, North American producers are likely to begin curbing investment and production growth. That said, the Saudis, the backbone of OPEC+, are already leading by example and have already scaled back their exports this month. We expect improving oil inventory dynamics – primarily in the US – to support oil prices over the coming months.”