Surging U.S. crude oil output and worries about a global economic slowdown contributed to a steep decline in crude oil futures Tuesday.
December West Texas Intermediate (WTI) crude oil futures fell by $4.24 to settle at $55.69 a barrel Tuesday. The benchmark’s high point for the day was $59.35 and its intraday low was $55.10. The January Brent, meanwhile, lost $4.65 to end the day at $65.47.
“More selling as concerns grow about the slowing global economy and rising output in the U.S. in particular, spurred by a surge in drilling in 2017 and the first half of this year,” Jason Feer, global head of business intelligence with Poten & Partners, told Rigzone. “The economic slowdown in China is particularly worrisome as that has been the driver for global consumption growth and a flattening of demand growth would hit prices in the longer term.”
Feer added that falling sales of crude from Iran and Venezuela may be garnering a disproportionate share of attention from traders.
“We are starting to think the sell-off may be overdone as Iranian exports are falling due to reimposed U.S. sanctions and Venezuelan exports continue to be weak as a result of the economic collapse of that country,” Feer said. “However, even if OPEC agrees to reduce output, it will be some time before the increase in U.S. production flattens out due to the surge of investment over the past 18 months.”
The December contract price for reformulated gasoline (RBOB) also ended the day lower. RBOB declined by 9 cents to settle at $1.54.
The story Tuesday was considerably more positive in regard to natural gas futures. The December Henry Hub price gained 31 cents to settle at $4.10. The increase stems from cold weather hitting the southern United States and concerns about low gas storage levels, Feer noted.
“Cold temperatures will require significant draws out of storage, setting the stage for high gas prices going forward, despite rising gas production,” Feer explained. “Moreover, pipeline bottlenecks make it difficult to increase gas supplies into the Northeast from the U.S. Gulf Coast, which will make the price spike even worse in that region. Tight supply in that region could lead to an increase in LNG imports later this year or First Quarter 2019.”