Published: Sat, June 08, 2019
Markets | By Otis Pena

Oil plunges into bear market territory, could this be why?

Oil plunges into bear market territory, could this be why?

US crude production continues to surge, however, as increased drilling in the prolific Permian shale basin helped push output to a record 12.4 million barrels per day (bpd) by the end of May. Brent was last down $1.78, or 2.9 per cent, at $60.19 a barrel.

Proving there is no limit to wild speculation when it comes to the crude market, Yahya Rahim Safavi, a top military aide to Iran's supreme leader Ayatollah Ali Khamenei, warned that with regards to the tensions brewing between the US and the Islamic republic, "The first bullet fired in the Persian Gulf will push oil prices above $100".

Brent crude futures were up 13 cents to $60.76 a barrel by 12:25 p.m. EDT (1625 GMT), while US West Texas Intermediate crude futures gained 2 cents to $51.70 a barrel.

Front-month Brent crude futures, the global benchmark for oil prices, were at $60.50 at 0108 GMT.

By then, both contracts were in bear-market territory, having lost more than 20 per cent from peaks reached in late April.

The European Central Bank's decision to push back the timing of its first post-crisis interest rate hike also weakened the global economic outlook and cooled expectations for crude demand.

Brent futures were down 27 cents, or 0.4 per cent at $61.70 a barrel. They finished the previous session 1.8 per cent higher. A breakdown in trade talks between the United States and China and threats of new American tariffs against Mexico have stoked fears about a world economy that's already showing signs of weakness.

Putin says US unilateralism hurts global trade, sows chaos
Trump is due to meet with Xi at the G20 summit in Japan later this month. Xi said the US and China had "strong trade and investment connections".

Supply has also been limited by USA sanctions on oil exports from Iran and Venezuela. Official numbers from the U.S. Energy Information Administration (EIA) are due out later on Wednesday.

To prevent oversupply and prop up the market, the OPEC, together with allies including Russian Federation, has been withholding production since the start of the year.

On Friday, WTI crude oil prices finally edged higher, rising from the five-month lows it had touched over worsening market sentiment.

Also potentially keeping a lid on prices is the unrelenting rise in USA crude production.

The United States has also threatened to put tariffs on goods from its major trading partner Mexico. The pact ends this month and the group meets in coming weeks to decide their next move.

In earlier comments, the minister had said he was unwilling to engage in a race to boost oil output to compensate for lower prices, saying a return to the situation that led to the price crash of 2014-2015 would be unacceptable.

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