Oil in London dipped below $50 a barrel for the first time since July 2017 before recovering as the market turmoil and worries over U.S. supply countered signs the OPEC+ coalition may extend or deepen output cuts.
Futures fell as much as 1.1% on Wednesday on the first day of trading after Monday’s 6.2% drop. Russian Energy Minister Alexander Novak tried to reassure investors, saying the market will be more stable in the first half of 2019 due to the deal between OPEC and its allies to cut output, and that producers will react if the situation changes. Meanwhile, the S&P 500 Index is at the brink of sliding into a bear market.
Oil has plunged more than 40% from a four-year high in October on the prospect of a supply glut.
While the Organization of Petroleum Exporting Countries and its allies including Russia agreed to cut output early this month, investors are skeptical the reductions will be sufficient to dent growing supplies, especially from U.S. shale. At the same time, President Donald Trump’s trade war with China and the Federal Reserve’s policy on interest rates have clouded the global economic outlook.
“Bargain hunting” after the pre-Christmas sell-off and thin trading on Wednesday may have triggered the price increase on Wednesday, Emirates NBD commodities analyst Edward Bell said. “Once we get back into a more normal level of volumes trading, we’d expect the market to lock back onto looking for fundamental drivers which are pointing to a soft start for 2019.”
Brent for February settlement declined as much as 54 cents to $49.93 a barrel on the London-based ICE Futures Europe exchange, before paring losses to trade at $51.05 at 11:15 a.m. in London.
Prices plunged $3.35 to $50.47 on Monday. Trading was closed on Tuesday for the Christmas holiday. The global benchmark crude traded at a $7.94 premium to West Texas Intermediate.
WTI for February delivery was 62 cents higher at $43.15 a barrel on the New York Mercantile Exchange. The contract slumped $3.06 to $42.53 on Monday. Total volume traded was about 19% above the 100-day average.
While OPEC and its partners are scheduled to meet in April, they can hold a meeting at any time if a quick response is required, Russia’s Novak said in an interview with Rossiya 24 TV channel. That follows the United Arab Emirates energy minister’s remarks, signaling the producers could hold an extraordinary OPEC meeting and discuss additional curbs if needed.
“There are several bearish factors in oil markets, and the situation won’t improve anytime soon,” said Satoru Yoshida, a commodity analyst at Rakuten Securities in Tokyo. “Oil prices could rise if OPEC+ make announcements about specific measures” including additional cuts, Yoshida said.
In wider financial markets, investors were still worried as the S&P 500 Index of equities stands just seven points away from completing a full-blown bear market drop. Global stocks have had their most brutal month since 2008 on speculation that Fed Chairman Jerome Powell’s tighter monetary policy will weigh on growth.
Meanwhile, the U.S. administration is struggling to contain the market turmoil, which intensified in the wake of a Bloomberg News report that Donald Trump had discussed firing Powell. While the U.S. president expressed confidence in Treasury Secretary Steve Mnuchin, the Fed and the economy on Tuesday, that hasn’t calmed markets.