Despite reassurances of production cuts from the Organization of Petroleum Exporting Countries, crude oil prices and energy-related ETFs continued to retreat on increasing concern over the potential negative effects of a slowing global economy.
On Tuesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, declined 3.5% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, decreased 2.5%.
Meanwhile, WTI crude oil futures were 4.9% lower to $47.5 per barrel and Brent crude fell 3.7% to $57.4 per barrel. The oil benchmarks have declined about 35% from their four-year highs at the start of October and are now trading at their lowest level in more than a year.
“The current price fall is greatly aided by the general fall in global equities due to persistent concerns about economic growth, including the U.S.-China trade dispute,” which has led to “fears of downward revisions in global oil demand growth,” Tamas Varga, analyst at brokerage PVM Oil Associates Ltd., told the Wall Street Journal.
Furthermore, rising supply, notably from signs of U.S. shale and Russian crude production, have also pressured global oil prices.
Shale Oil Production
According to the U.S. Energy Information Administration, shale oil production would rise from December by 134,000 barrels per day to 8.17 million barrels per day in January.
Additionally, Russia said its oil output surged to a record 11.42 million barrels per day in December.
“This appears to be raising doubts on the market that Russia will in fact cut its production from January as agreed with OPEC,” analysts at Commerzbank said in a note. “It is at least likely to take some months until Russia has fully implemented the agreed cuts.”
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OPEC and its partners previously reached an agreement to curb crude output by 1.2 million barrels per day starting in January. While the announcement in early December helped trigger a rally, the production cuts failed to maintain the rebound in oil prices, with investors concerned over the volume of the global oil glut.
“Ultimately, it’s going to take a lot longer for that surplus to be worked off in the event that we do get a cut in the new year,” Michael Hewson, chief market analyst at brokerage CMC Markets, told the WSJ.
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