Oil falls after Russian Federation preaches patience rather than production cuts

Gladys Abbott
November 20, 2018

Crude futures fell to fresh session lows after President Donald Trump issued a statement saying the United States stands by Saudi Arabia following the slaying last month of journalist and USA resident Jamal Khashoggi by Saudi agents. From Nov-Jan previous year, crude rallied 20%.

Russia's wait-and-see stance to not immediately join Saudi counterpart Khalid Al-Falih in calling for a broad production cut shows their different positions persist just weeks before the key OPEC+ summit in the Austrian capital.

The market is less sure that a move is coming in December after Russian energy minister Novak said they need to watch the market in the weeks ahead before making any decisions.

Oil dropped again on persistent fears that a surplus will re-emerge next year despite OPEC's plans to cut production.

Ahead of the bi-annual OPEC meeting on December 6th, expectations have been growing that the cartel will look to cut oil output (by roughly 1-1.4mbpd) in order to prevent oversupply given the slowing demand growth, coupled with the surge in oil production by the USA (currently producing at a record 11.7mbpd).

"Oil prices rose (last week) on hope OPEC and partners will act to reverse bearish sentiment, but from a technical set up, bear mode remains intact", OANDA strategist Stephen Innes said.

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US West Texas Intermediate (WTI) crude futures were at $57.07 a barrel, 13c, or 0.2%, below their last settlement.

A trade war between the United States and China has made investors warier about the outlook for oil demand growth. Total volume traded Tuesday was 40 percent above the 100-day average. The more-active January contract gained 16 cents to $56.84. The details would be discussed at the meeting of the organization scheduled for December 6 in Vienna.

Fisher went on to say that the worst of the market rout was due to momentum trading and hedge funds dumping crude futures in order to buy natural gas, which has surged over the last month: "When that trade is finally unwound and when. you start seeing. some more negative stats with no negative price action that's. when you'd want to buy the dip in crude". USA crude production has been rising, hitting a record in the week ended November.

Industry group the American Petroleum Institute is scheduled to release its data at 4:30 p.m. EST, followed by government data on Wednesday morning.

"For a cut to be successful in supporting the market, they're going to have to present a front that is not fractured and the chance of that is looking less and less likely as December 6 approaches", said Bob Yawger, director of energy futures at Mizuho in NY.

This comes as supply in the United States is surging. The Cboe/Nymex Oil Volatility Index fell more than 3 percent on Friday, declining for a third day.

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