Published: Wed, December 19, 2018
Markets | By Otis Pena

'Fear of recession': Oil crashes as dark clouds envelop demand outlook

'Fear of recession': Oil crashes as dark clouds envelop demand outlook

WTI traded at a US$9.33 a barrel discount to Brent.

Concern that there's too much oil for a slowing global economy sent a tremor through oil markets Tuesday, as the benchmark price for North American crude fell more than seven per cent to its lowest level since the summer of 2017.

OPEC has its work cut out to persuade the market that its output caps will stabilize oil prices - and USA producers aren't helping matters.

Oil is on track for a third straight monthly decline despite efforts by OPEC, Russia and other major exporters to halt the slide.

Investor confidence is deteriorating, with more fund managers expecting global growth to weaken over the next 12 months, the worst outlook in a decade, Bank of America Merrill Lynch's December investor survey showed.

Supply curbs agreed by Opec and its Russia-led allies might not bring about the desired results as U.S. output goes on increasing and as Iran keeps pumping out more oil, analysts said.

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Prices declined after the Energy Information Administration reported on Monday that US shale output could rise above 8 million barrels per day for the first time ever next month.

Both oil benchmarks have shed more than 30% since early October due to swelling global inventories.

"A large part of the move is due to a broader market sell-off, with both United States and Asian equity markets coming under pressure", said commodities strategist Warren Patterson at Dutch bank ING in Amsterdam. Oil production from seven major United States shale basins is, expected to climb to more than 8-million barrels per day by the year-end. January, however, could provide some clarity as to whether OPEC and some nonmember allies will follow through on an accord to cut production by 1.2 million barrels a day - But, for the meantime, its all down to speculation.

Among the factors fuelling uncertainty there are the fact that Britain's largest oilfield, Buzzard, restarted production and an increasing supply.

The United States has surpassed Russian Federation and Saudi Arabia as the world's biggest oil producer, with total crude output climbing to a record 11.7 million bpd. Oil output from Russian Federation has been at a record-high of 11.42 million barrels per day (bpd) so far in December.

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