Oil Crashes After Trump Says Prices Should Be 'Much Lower'

Oil Crashes After Trump Says Prices Should Be 'Much Lower'

The slump in spot prices has turned the entire forward curve for crude oil upside down.

U.S. futures closed down 7.1 per cent for a record 12th straight decline and the lowest since November 2017.

Brent is in so-called "bear market" territory alongside USA crude as it has fallen by more than 20% since its peak - $86 in early October.

One analyst, Phil Flynn of Price Futures in Chicago, said of Tuesday's sell-off: "It's like a run on the bank". Oil prices have now fallen for 12 consecutive trading sessions.

Why are oil prices falling?

By mid-November, the curve had flipped into contango, when crude prices for immediate delivery are cheaper than those for later dispatch. That implies an oversupplied market as it makes it attractive to store oil for later sale.

Oil markets are being pressured from two sides: a surge in supply from OPEC, Russia, the Unites States and other producers; and increasing concerns about a global economic slowdown.

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Saudi Energy Minister Khalid al-Falih said on Monday OPEC agreed there was a need to cut oil supply next year by around one million barrels per day from October levels to prevent oversupply.

That surge in onshore output has helped overall U.S. crude production hit a record 11.6 million bpd, making the United States the world's biggest oil producer ahead of Russian Federation and Saudi Arabia.

Alongside this, much depends on not only OPEC's actions but also Russian Federation and the USA, who are both producing at record levels, particularly as demand is seen dropping for OPEC oil.

"This will, in our view, cap any upside above $85 per barrel (for oil prices)", said Jon Andersson, head of commodities at Vontobel Asset Management.

Mr Trump's tweet followed weekend reports that Saudi Arabia was considering a production cut at the December Opec meeting, on increased alarm that supply has started to outpace consumption.

Crude prices are influenced by several variables such as speculation on oil trades (known as futures), inventory levels, geopolitics, global economic growth and the relationship between global supply and demand. USA shale drillers are the biggest production factor that OPEC and Russian Federation can not control, after all.

At the same time, the price for the WTI Crude Oil has also decreased on Wednesday by 8.31 percent and reached $54.95 per barrel for the first time since November 16, 2017, according to the market data.