Oil Prices Fall Amid Global Market Selloff

02/06/18 11:24 AM EST
By Christopher Alessi 

A global stock market rout continued to weigh on oil market sentiment Tuesday, as crude prices edged lower in morning trading.

Light, sweet crude for March delivery lost 27 cents, or 0.4%, to $63.88 a barrel on the New York Mercantile Exchange, on track to close at a two-week low. Brent, the global benchmark, fell 50 cents, or 0.7%, to $67.12 a barrel.

The Dow Jones Industrial Average continued to sink Tuesday morning, one day after its largest-ever single-day point decline, 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.

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.

Gasoline futures declined 1.7% to $1.8162 a gallon and diesel futures fell 0.9% to $2.0008 a gallon.

Stephanie Yang contributed to this article.

Write to Christopher Alessi at christopher.alessi@wsj.com

 

(END) Dow Jones Newswires

February 06, 2018 11:24 ET (16:24 GMT)

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