Oil Prices Fall Amid Global Market Selloff
By Christopher Alessi
LONDON -- A global stock market rout continued to weigh on oil market sentiment Tuesday, as crude prices edged lower in morning trading.
Brent crude, the global benchmark, was down 0.65% at $67.18 a barrel on London's Intercontinental Exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down by 0.47% at $63.85 a barrel.
The Dow Jones Industrial Average on Monday posted its largest-ever single-day point decline -- briefly dropping nearly 1,600 points -- while major indexes in the U.S., Europe and Asia gave up gains for the year.
"Oil prices could not escape the risk-off mood in financial markets. We believe the sentiment cycle has finally turned and see more near-term downside for oil prices," said Norbert Ruecker, head of macro and commodity research at Julius Baer.
Brent, which had surpassed three-year highs in recent weeks, has fallen to its lowest level since the start of the year. Prices had been buoyed in recent months by strong demand, geopolitical risk to supply, declining inventories and crude production cuts led by the Organization of the Petroleum Exporting Countries.
But the reversal in equities markets and the "rise in risk aversion that this expresses is prompting speculative financial investors to get out of their crude oil forward contracts," according to analysts at Commerzbank. Speculative net long positions in both Brent and WTI had been near record levels in the last reporting week.
Stocks and commodities have also been pressured by a strengthening U.S. dollar, according to Tamas Varga, an analyst at brokerage PVM Oil Associates Ltd.
The greenback, which tends to have an inverse relationship with the dollar-denominated commodities like oil, has been trending higher on "fears the that the Federal Reserve will be more aggressive in increasing interest rates, with U.S. inflation potentially on the rise," Mr. Varga noted.
At the same time, the higher price environment has incentivized U.S. shale oil producers to ramp up production, in turn putting a cap on crude prices, analysts say.
Oil market observers will be looking ahead to weekly forecasts later Tuesday from the American Petroleum Institute on U.S. inventory levels for last week. The U.S. Energy Information Administration will release official data on stock levels and production on Wednesday.
Among refined products, Nymex reformulated gasoline blendstock -- the benchmark gasoline contract -- was down 1.36%, at $1.85 a gallon. ICE gas oil, a benchmark for diesel fuel, changed hands at $597.75 a metric ton, down 1.69% from the previous settlement.
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(END) Dow Jones Newswires
February 06, 2018 06:32 ET (11:32 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.