Crude oil prices and energy-related ETFs plunged Tuesday after Saudi Arabia pledged to increase output despite growing concerns over global growth.
On Tuesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, declined 4.8% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, decreased 4.5%.
Meanwhile, WTI crude oil futures were 4.2% lower to $66.5 per barrel and Brent crude was down 3.9% to $76.7 per barrel
“It’s taking a real severe walloping today,” Gene McGillian, research manager at Tradition Energy, told the Wall Street Journal. “The question now is, how severe of a correction are we going to see?”
Oil prices were slipping after Saudi Energy Minister Khalid al-Falih reportedly said the kingdom would increase crude production to 11 million barrels a day, compared to the current average of 10.7 million barrels a day.
“That rhetoric draws parallels to OPEC’s strategy that helped crash crude prices lower in late 2014, though today’s market has much more limited spare capacity and lower overall inventories,” analysts at Schneider Electric said.
Market Sell-Off
Further exacerbating the sell-off, the market was growing increasingly wary of the global growth outlook.
“This market was going to be under pressure anyhow, along with anything seen on the risky side, but then the Saudis came out with that statement and added to the downside pressure,” Bob Yawger, director of the futures division at Mizuho Securities U.S.A. told the WSJ. “It’s hard to really get out there and find a bullish situation here.”
UBS analysts warned that oil-demand growth could slow in 2019 due to higher prices and weaker economic growth.
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Both the International Energy Agency and the Organization of the Petroleum Exporting Countries have already lowered global demand-growth projections for this year and the next.
“There seems to be growing concern about demand growth that’s underpinned by the equity markets and the economic outlooks,” McGillian added.
Furthermore, the upstart U.S. energy industry is pumping out more oil and shipping it off to foreign buyers. Analysts are waiting on the weekly crude stockpile data to see if the four-week trend of rising supplies could continue.
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