After briefly strengthening on prospects of OPEC production cuts Monday, crude oil prices and oil ETFs plunged Tuesday in response to President Donald Trump’s thoughts on any output reductions.
On Tuesday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, declined 6.6% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, decreased 6.2%.
Meanwhile, WTI crude oil futures were 8% lower to $55.1 per barrel and Brent crude fell 7.3% to $65.0 per barrel.
Oil prices slipped to their lowest intraday level this year and were on track for their 12th consecutive sessions of declines after remarks from President Trump urging Saudi Arabia and the Organization of Petroleum Exporting Countries to not reduce oil production even as traders were concerned about an oversupplied market, the Wall Street Journal reports.
“The market is spiraling out of control,”Eugene McGillian, vice president, market research at Tradition Energy, told the WSJ. “It’s really a continuation of what we’ve been seeing before, and on top of that, the uncertainty about the president’s tweet to producers about what they’re going to do.”
President Trump tweeted Monday, “Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!”
The tweet surprised many market observers as analysts largely expected Trump’s push for lower oil prices would end after the midterm political heat was over.
Saudi Arabia said over the weekend it planned to reduce exports by 500,000 barrels per day to support faltering prices and avoid a global supply glut. Crude oil prices have been plummeting throughout October and November, and it is now trading well into a bear market or a fall off of more than 20%.
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The pull back in oil prices has been attributed to increased production fro non-OPEC members, namely Russia and U.S. shale in anticipation of the drop off in supply from the Iran sanctions.
Furthermore, the U.S. government recently decided to soften its oil sanctions on Iran, which exacerbated the supply surplus concerns.
Meanwhile, there are growing concerns over diminished demand in a weakening global economic outlook, especially with the trade war disputes between the U.S. and China.
“Basically, we’ve gone from envisioning tighter supplies six weeks ago to now expecting excess supplies on the market, and demand is starting to falter,” McGillian added.
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