Oil claws back some losses after 6% plunge, but outlook still weak

Oil claws back some losses after 6% plunge, but outlook still weak

West Texas Intermediate (WTI) for January delivery sank US$3.77 to settle at US$53.43 a barrel on the New York Mercantile Exchange, down 6.6 per cent.

Oil prices are around a quarter below their recent peaks in early October, weighed down by surging supply, especially from the United States, as well as a slowdown in global trade.

So far in the session, more than 836 000 front-month WTI contracts had changed hands, exceeding the daily average over the last 10 months.

Brent crude futures fell $4.50, or 6.7 percent, to $62.29 a barrel. The worldwide benchmark fell as much as 5.1 percent to $63.36, the lowest since early March. PetroChina's shares, for example, have only declined 14% since Brent crude topped out on October 3.

"For the time being it's more about risk".

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"When the stock market comes off 8%-9%, it tends to conjure up images of a weak global economy and that feeds into expectations of weaker than expected oil demand", says Jim Ritterbusch of Ritterbusch and Associates.

Analysts and traders say the oil market rout has deepened due to momentum trading and investors dumping crude futures to buy natural gas contracts.

While Saudi Arabia's Energy Minister Khalid al-Falih says that based on the OPEC+ group technical analysis, "there will need to be a reduction of supply from October levels approaching a million barrels", reports emerged last week that Russian Federation would rather stay out of any fresh oil production cuts led by the Saudis.

The CIA has reportedly concluded that Saudi Crown Prince Mohammed bin Salman ordered Khashoggi's killing, but Trump cast doubt on that assessment on Tuesday, saying "maybe he did and maybe he didn't!"

"Investors are becoming increasingly concerned that any potential production cuts by OPEC will be insufficient to cover the surplus in the market", ANZ bank said on Wednesday.

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Weekly exchange data shows money managers hold a combined net long position equivalent to around 364 million barrels of US and Brent crude futures and options, down from over 800 million barrels two months ago.

With the U.S. -China trade dispute threatening to hurt global economic growth, demand for crude oil is expected to drop significantly in the near term.

US crude stockpiles have grown for eight straight weeks, and data last week showed inventories swelled by the most in more than a year.

U.S. crude oil production has jumped by nearly a quarter this year, to a record 11.7 million bpd largely because of a surge in shale output.

With output surging and the demand outlook deteriorating, the Organization of the Petroleum Exporting Countries (OPEC) is pushing for a supply cut of between 1 million and 1.4 million bpd to prevent a repeat of the 2014 glut.

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