Crude prices fell in US midmorning trading Monday as last week’s selloff in equity markets extended, stoking concerns that an economic slowdown could impact oil demand growth. ICE February Brent was down 86 cents at $60.81/b and NYMEX WTI was $1.11 lower at $51.50/b. Monday’s declines pushed crude prices to just above Thursday levels, roughly erasing the upward price impact of OPEC’s production cut announcement.
On Friday, the coalition of OPEC and non-OPEC members collectively agreed to implement 1.2 million b/d of cuts to production, beginning in January 2019, after months of dramatic price falls on crude markets. For Saudi Arabia alone, that would result in a drop to 10.2 million b/d in output in January, down from the 10.7 million b/d expected in December. But continued slides in equity markets have raised concerns that slowing economic growth could reduce oil demand to the point that these cuts would be insufficient to balance the market. US equity markets opened sharply lower on Monday, with the S&P 500 index down around 1.5% and the Dow Jones Industrial Average down nearly 2% in midmorning trading.
“It’s all starting to unravel on outside pressure from a weakening stock market and outside macroeconomic fear forecasts,” Price Futures Group Phil Flynn said in a morning note. Oil prices gleaned some support after British Prime Minister Theresa May announced she would delay Tuesday’s planned vote on her Brexit proposal. Delaying the vote, which was widely expected to fail in Parliament, adds uncertainty to the Brexit process and may increase the chances of the UK exiting the EU without a trade deal in place. This so-called “hard Brexit” would drastically impact European trade flows and likely curtail economic growth in the region.
But Monday’s selling pressure was strong enough that the market all but shrugged off reports that Libya’s National Oil Corporation (NOC) has declared force majeure on crude oil loadings from the Sharara field due to a forced shutdown caused by the presence of militia, S&P Global Platts reported earlier. Sharara is the country’s biggest oil field. “The shutdown of Sharara will result in a daily site production loss of 315,000 b/d, with an additional loss of 73,000 b/d at El Feel due to its dependence on Sharara for electricity supply,” NOC said in a statement.
Libya, along with Venezuela and Iran, was excluded from last week’s announced OPEC cuts, meaning that a sustain production interruption would take additional barrels off the market in 2019. NYEMX January ULSD was down 1.77 cents at $1.8685/gal and NYMEX January RBOB was 3.77 cents lower at $1.4481/gal. Platts.com
