Investing.com -- Crude oil prices tumbled on Monday as markets opened the week in downbeat mood, disheartened by the lack of progress in resolving the U.S.-China trade dispute.
The dispute has clouded the outlook for the global economy and consequently for oil demand growth: the International Energy Agency last week revised down its forecast for demand growth in 2020 by 100,000 barrels a day due to the weak economic outlook.
By 9:42 AM ET (1342 GMT), U.S. crude futures were down $1.46 or 2.7% at $53.24 a barrel, while international benchmark Brent was down 2.2% at $59.17 a barrel.
There is, so far, no sign of supply weakening to accommodate the lower demand trajectory. On a high-profile visit to Saudi Arabia on Monday, Russian President Vladimir Putin gave no indication of pressing for further cuts in output from the so-called OPEC+ group – the loose alliance informally led by Russia and the desert kingdom.
Saudi Arabian oil minister Prince Abdulaziz bin Salman, meanwhile, said that he expected Saudi Arabia to maintain output at 9.86 million barrels a day throughout October and November, having fully restored the country’s oil infrastructure in the wake of a series of drone strikes a month ago.
The attacks, which knocked out over 5% of the world’s oil supply for a few days, caused only the briefest of spikes, prompting some bewilderment at the lack of a visible geopolitical risk premium. However, some think the risk premium is there alright – it’s just masking exceptionally weak fundamentals.
Abhi Rajendran, head of North American shale research at Energy Intelligence, said via Twitter there is probably a $5/barrel premium still built in to market prices.
Normally, lower oil prices should feed through to consumers in oil importers, supporting the economy. However, other developments in global oil markets may be stopping that from happening. Analysts at the Oxford Institute for Energy Studies argued in a research note published Monday that U.S. sanctions on Chinese shipping COSCO and Exxon (NYSE:XOM) and Unipec’s parallel actions against ships connected to Venezuela have significantly reduced the effective availability of tankers to the global market. That results in more expensive arbitrage opportunities for buyers.
“In just over a week, the cost of taking a barrel of oil on that route (from the Gulf to Asia), through the cheapest possible way, rose by $6 per barrel,” authors Adi Imsirovic and Michal Meidan wrote.
Hopes that lower prices would knock out some marginal shale producers still seem wide of the mark: the U.S. is producing at record levels and the long decline in U.S. drilling came to at least a temporary halt last week, with Baker Hughes reporting the first weekly increase in active oil drilling rigs since August.
The worsening fundamentals have also caused a major rethink by hedge funds and other portfolio players in the last week. According to CFTC data released on Friday, speculative net long positions in crude oil fell to their lowest in four months.