Oil Has Recently Moved in Tandem with Equity Prices

Gladys Abbott
March 9, 2018

Oil fell by the most in more than three weeks as equities declined, the dollar rose and a US government report showed an expansion of crude stockpiles and production.

United States crude oil output is set to top 11 million barrels per day this year, making it the world's largest producer and threatening to offset the boost to prices from reduced supply from rivals within OPEC.

India and China are becoming the largest importers of oil and are likely to overtake the United States by 2020, according to the International Energy Agency (IEA).

USA output has also dented sentiment.

West Texas Intermediate for April fell as much as 80 cents to $61.80/bbl on the New York Mercantile Exchange and traded at $62.28 as of 8:21 a.m. local time.

Oil has recently tended to move in tandem with the equity market.

"Oil fundamentals have been showing signs of weakening", said Ole Sloth Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen.

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"Today is going to be more about watching the S&P. the correlation between the (index) and oil has been moving in synchronicity".

With US output outpacing demand growth, analysts say the Organization of the Petroleum Exporting Countries (OPEC) and Russian Federation, who together with some other producers have been withholding production in order to prop up prices, are under pressure to keep up the supply restraint, even at the cost of market share.

The EIA reported late yesterday that USA crude inventories rose by 2.4 million barrels in the week to March 2, to 425.91 million barrels, less than the 2.7 million barrel increase analysts had forecast. When asked whether the Organization of Petroleum Exporting Countries was anxious about further USA crude output growth, OPEC Secretary General Mohammad Barkindo said he wasn't and pointed to robust demand.

Official data by the US Energy Information Administration (EIA) is due on Wednesday.

A surge in US crude production to more than 10 million barrels per day (bpd) has helped the country overtake top exporter Saudi Arabia.

The market has recovered mostly since the OPEC cartel partnered with Russian Federation and other producer nations to cut output in 2017.

As far as Mohammad Barkindo, secretary general for the Organization of the Petroleum Exporting Countries, is concerned, worldwide demand is strong enough to offset any such waves: he said, "Demand has not been this solid and positive in a long while, probably since the last global financial crisis".

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