Crude oil extended its current sell-off to a sixth consecutive losing week this week. The increased selling came on the back of yet another reported build in US crude oil inventories.
The latest data from the Energy Information Administration showed that crude oil stocks in the week up to November 9th grew by 10.3 million barrels, the biggest weekly build in almost two years, to 442.1 million barrels.
Meanwhile crude oil production hit another record high at 11.7 million barrels per day over the week. Crude output in the US has now surged by nearly 25% over the year so far and yet demand is simply not materializing. This is especially odd given that the approaching winter in the US usually sees increased demand for crude and fuels.
Weak Global Demand Forecasted
In its latest outlook, the EIA said that it forecasts demand to weaken due to slower global economic growth linked to trade war concerns. Furthermore, there is a fear that the global market will once again quickly swing into a state of acute oversupply, due to soaring US crude production, such as we saw in 2014 when prices cratered.
OPEC To Cut Supply, Not Increase
OPEC has also revised lower its demand projections in light of weakened global activity. However, in light of this weakened demand and wary of the market swinging into oversupply, OPEC is expected to be withholding supply soon. Saudi Arabia, the largest oil producer in the 15 member cartel, wants itself and its allies to reduce oil output by around 1.4 million barrels per day (roughly 1.5% of global supply) in order to keep prices supported. This move marks a dramatic shift away from the group’s efforts in September to get members to increase production.
However, industry experts are warning that such a move will be ineffective because OPEC production cuts usually involve the removal of medium and heavier barrels whereas the market is currently being flooded with light-sweet crude.
Trump Pleads For Lower Oil Prices
President Trump has once again taken to publicly addressing OPEC through his twitter account. Earlier this week the president tweeted that he hopes OPEC won’t cut oil production and will allow prices to move lower. The tweet read:
“Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!”.
Trump has been consistently vocal in his opinions about OPEC this year and has criticized the group plenty of times for trying to keep oil prices propped up. His remarks this week come shortly after a committee representing OPEC concluded that the group will need to cut production. On the same day, the Saudi Arabian energy minister Khalid al Falih said that oil shipments from the kingdom would decrease by 500k barrels in December.
Russia Warns Against “Hasty” Policy Changes
However, this time it is not just the US voicing its concerns. The Russian energy minister Alexander Novak told reporters this week that
“There is a lot of volatility in the market. And what’s more this volatility could remain…Therefore, right now we shouldn’t be making any hasty decisions. We need to look at the situation very carefully to see how it will develop so that we don’t end up changing our course by 180 degrees every month.”
The sell-off in Oil this week has seen prices breaking down below the bullish channel support which has been in place since 2015 lows. Price traded down as far as a retest of the 55.40 2016 high which has acted as support for now. If price moves below here, the next clear structural support level is all the way down at 42.93.
However, while price remains above the 2016 high, we are likely to see some consolidation. Any retest of the broken bullish trend line (and just above it the broken 62.60 level support) should see sellers step in.