Oil prices fell about 3 per cent on Monday on rising US oil production and waning confidence that the US and China will soon end the trade war between the world’s two largest economies. Equinor photo by Øyvind-Hagen.
“We’re seeing oil prices really start to break down”: RJO Futures senior market strategist
Oil prices took a tumble on Monday on data showing an increase in US crude drilling as well as waning confidence that the US and China will end the ongoing trade war.
By 2:55 p.m., EST, benchmark Brent crude futures had fallen 2.92 per cent or $1.80 to $59.79/barrel. US West Texas Intermediate crude futures dropped 3.17 per cent or $1.70 to $51.99/barrel.
“We’re seeing oil prices really start to break down here,” Phillip Streible, senior market strategist at RJO Futures told Reuters. “One of the factors that played in is the rising rig count that we saw on Friday.”
Baker Hughes released its weekly oil rig count on Friday which showed US drillers added 10 oil rigs last week, bringing the total number of rigs to 862. Traders said rising US crude production has negatively impacted market sentiment.
Scandinavian bank SEB cut its oil price forecast from $85/barrel to $65/barrel. The bank said weakening demand in 2019 and 2020 and rising US production were the reasons for the drop in expected oil prices.
Along with supply concerns, the ongoing trade war between the Trump administration and China is pulling down oil prices. Investors have lost confidence that the two sides will soon end the dispute which has taken its toll on China’s economy.
Despite the gloom, crude futures are still on course for their strongest monthly gains in over two years after OPEC announced another round of supply cuts in early January. Also, robust trade in physical barrels of crude by China helped boost crude futures.
So far in January, Brent futures are up almost 12 per cent. If this holds, it would be the largest monthly percentage increase since December 2016. US WTI is up over 13 per cent this month. This is the biggest increase since April 2016 when it soared almost 20 per cent.
Data from InterContinental Exchange shows that in January, investors have added bets on sustained rising oil prices for the first time since September.
Much of the demand outlook, however, hinges on China and whether its refiners will continue to import oil at 2018 levels.
In December, industrial companies in China reported a second monthly fall in earnings, despite Beijing’s efforts to support borrowing and investment.