Oil Price Falls as OPEC Cuts Look Increasingly Unlikely to be Implemented
- UK-based Brent and US-principal WTI prices drop on signs of persistent oil glut
- Fears mount that proposed OPEC production cuts won’t be implemented
- Oil’s woes mean bad news for FTSE 100 and European stock markets
- Commodity currencies could also come under pressure
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Too much oil in the tank is bad for your engine. The same holds true for the machinations of the oil market, and renewed fears of a global glut are heaping pressure on prices.
US WTI oil fell below $50 a barrel Wednesday with Brent dropping to a near one-month low after inventory numbers released yesterday by the American Petroleum Institute that showed a rise of 4.8 million barrels in the week ended October 21. Analysts had expected a rise of 1.7 million barrels.
Prices have since recovered, but only slightly, after US Energy Information Administration data released this afternoon showed a drop in US crude inventories of -553,000 in the week ended October 21, against expectations of a 1.94 million barrel rise.
WTI oil currently trades at $49.46 a barrel after earlier falling to $48.93, the lowest level since October 4. Brent crude trades at $50.05 after touching a session low of $49.65, the weakest since September 30.
The relief will also be temporary. Prices are expected to remain under pressure amid growing fears that OPEC will scrap its planned production cut at its meeting next week. Two weeks ago, OPEC members announced intentions of a deal (with details due in November) to cut production for the first time in eight years, sending crude prices surging.
OPEC’s oil ministers said output would fall by around 700,000 barrels per day. But Russia and Iraq have now both said they want to be exempt from a production cut. Iraq, OPEC's second biggest oil producer, claims it needs the revenues to fight Islamic State.
Falling oil prices also spell bad news for London-listed stocks – the energy sector makes up 14% of the FTSE 100 – and European stock markets. The FTSE is back below 7,000 Wednesday, partly owing to a 1.6% drop in the energy sector.
Oil’s woes will further put pressure on commodity currencies such as the Canadian, Australian and New Zealand Dollars. The Canadian Dollar is already under pressure after Bank of Canada Governor Stephen Poloz hinted in a speech Monday at the possibility of interest rate cuts. USD/CAD climbed to a seven-month high last week after disappointing Canadian retail sales and consumer price data.
Chart prepared by John Kicklighter using TradingView on DailyFX.com
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