Benchmark oil prices took a nose dive today, with both WTI and Brent shedding their recent gains. Prompt-month WTI dipped into $75 per barrel territory on a combination of weak economic outlooks and supply/demand fundamentals.
The other big news impacting WTI was Saudi Aramco’s price cut to the crude oil grades it exports into the US, which many saw as a move to shore up market share at the expense of domestic grades.
“People are panicking,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. “There is this pervasive belief that the Saudis are in a market-share war.” – As reported by Bloomberg
A 2.3 million barrel US crude oil inventory gain last week signaled oversupply to the market, which combined with weak global economic forecasts – and the Saudi price cut – to send prices tumbling.
The view among traders is that recent economic indicators are highly correlated with downward trending oil prices.
“The cacophony of various talking heads proclaiming this morning that oil price weakness is not due to weak demand but to over-supply (which are obviously merely different sides to the same coin) was deafening. While he hate to steal the jam from their aggregate donuts, the following chart may just provide a hint at what is really driving oil prices… ‘it’s the economy, stupid!’” – Zero Hedge
Credit: Bloomberg
If prices don’t recover before Opec’s meeting later this month, calls among the cartel’s members for production cuts will also be deafening.
