Oil deepens its fall and becomes another focus of global turmoil



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Trump, the day before yesterday, during a White House teleconference with members of the military Source: AFP – Credit: Mandel Nigan

Oil prices hit the lowest levels in more than a year due to the economic slowdown, the trade war and the possible oversupply

LONDON (Reuters) – Oil plummeted to its lowest level in more than a year and dragged big energy companies down in a mood of nerves due to the economic slowdown and pending talks on the US trade war. and China, during the G-20 summit next week in Buenos Aires.

It is feared that the global economic slowdown could affect demand for oil and uncertainty over the conclusions of a key December meeting of OPEC countries that could result in an oversupply of oil combined to exasperate investors and topple prices for the seventh consecutive week.

Brent, the international standard, lost 6.07% to $ 58.80 a barrel. During the session, it reached the lowest level since October 2017 at 58.41 dollars. US crude oil lost $ 4.21, or 7.71 percent, to $ 50.42 a barrel, the lowest level since October 2017. Chevron and Exxon oil giants fell 3.4 percent and 2.7 percent, , respectively.

"The whole week has been very difficult for oil prices to hit new lows in more than a year because of worries about an overabundance of oil and fears about global growth," said Lukman Otunuga, an analyst at FXTM. .

But the most imminent factor is the scheduled talks between Donald Trump and Chinese President Xi Jinping next week in which they are expected to address Washington's protectionist escalation with a global council outburst.

"Oil is plummeting, continuing its decline, and this seems to worry investors a lot that global growth is slowing," said Jeff Kravetz, director of regional investment at US Bank Private Wealth Management.

A decline caused in large part by the trade war between the two major economic powers, as noted by Phil Flynn, an analyst at Price Futures Group. "The market is contemplating an economic slowdown, anticipating that Chinese trade negotiations are not going well," he said.

Oil prices rose to the highest level in four years in October at $ 85 a barrel. At that time, there was fear of a slump in supply due to new US sanctions on Iran, a global oil giant, but in dire straits with the Trump government, which reversed the approach its predecessor, Barack Obama, had reached.

Since then, prices have fallen more than 30%, in a new turn of expectations that make the barrel jump from the top down in a sea of ​​unstable values ​​and impossible predictions.

A few weeks after sanctions came into effect, which provided for exemptions to allow several countries to continue importing oil from Iran, investors began to take an interest in the opposite direction. They no longer feared the shortage, but the overabundance of crude oil on the market.

Following Trump's and Xi's talks in Buenos Aires, the focus will be on the Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna a week later. No one is sure if the Arab monarchs and other members of the powerful cartel will decide to open the tap further or restrict the flow to raise prices.

Saudi Arabia and other OPEC members have recently expressed their willingness to consider production cuts during the Vienna meeting. But Washington is increasingly pressing Saudi Arabia and the entire select oil club so they do not cut production and thus favor lower prices.

With the balance of possibilities spinning from side to side, many investors for now are still betting on a price decline, even though "OPEC exporting countries may reduce their output during their meeting," Otunuga said.

Saudi Arabia plays a decisive role in the heart of the cartel and its attitude in Vienna continues to be seen. Trump congratulated Riyadh on Wednesday for helping to lower oil prices with pumping in recent weeks, and compared it to a "big tax cut" to boost economic activity.

"Oil prices are falling, great! Like a big tax cut for the United States and the world, enjoy! Thank you, Saudi Arabia, but let's go down!", Wrote the magnate on Twitter. "Thank you Saudi Arabia, but let's go even more," he wrote at his Mar-a-Lago club in Palm Beach, Fla.

Saudi Crown Prince Mohammed Ben Salman, with the reputation of a reformist leader who has disintegrated after the murder of journalist Jamal Khashoggi, will go to the G-20 Summit in Buenos Aires. Russian President Vladimir Putin will also be responsible for another oil power with a capacity to influence prices. Putin and Trump exchanged a few words about oil when they coincided at the end of World War I ceremonies in Paris.

According to Trump, Putin said he was "happy" about prices and would not commit to reducing production, as some OPEC members asked. Although OPEC has said it expects to return to production cuts, Russia has adopted a "wait and see" approach.

The reasons behind volatility

The ups and downs of oil and its direct relationship with diplomacy in the Middle East

Why do oil prices fall?

In recent months, the market's priority has changed abruptly. When major producers, including OPEC and Russia, met in Vienna in June, the main concerns were the potential for price recovery and whether reserves would be adequate. Trump's decision to re-impose sanctions on Iran threatened to take a large amount of oil from the market. During the summer, the Saudis and other producers who had stopped production since 2017 opened the taps to reassure consumers and Trump. Maybe they were very proactive. Traders were no longer interested in Iran and focused on other factors, for example if Trump's trade battles with China and rising interest rates could hurt global economic growth and demand for oil. At the same time, production in the United States has grown faster than expected. It has also increased in Libya, although the war continues and remains better than expected in Venezuela. According to analysts, large volumes of oil are accumulating again in storage tanks around the world, which increases the fear of a new oversupply.

What is the impact of sanctions on Iran?

In fact, since the 5th of this month, they have had less effect on Iranian output than some analysts have predicted. The buyers were expected to reduce their purchases of oil before the sanctions, but it appears that this action only moderately slowed down Iran's output. For example, OPEC reported that Iranian output in October fell 4.5% last month. Some background explains why the impact was poor: the Trump government granted temporary exemptions to Iran's biggest clients, including China, India and Japan. Oil traders interpreted the government's generosity that possible cuts in Iranian exports could be smaller than than expected. The exemptions for Japan and South Korea, which had stopped buying Iranian oil, were surprising. That may indicate that government priorities are more inclined to keep prices down for American consumers than to oppress Iran. If so, it seems the strategy is working: the price of gasoline in the United States is $ 2, 61, compared with $ 2.85 in the previous month.

Which factors will decide the price?

There is mounting pressure on OPEC to sustain prices when the organization meets with Russia and other producers in Vienna in December. Experts expect production cuts of about one million barrels a day, about 1 percent of world reserves, to be announced. There is little doubt that the Saudis can cut such magnitude. After all, they have increased production by 700,000 barrels per day compared to the average production of 2017. Saudi Arabia may have difficulty convincing producers like Russia and Iraq to cut back as well. Perhaps the Saudis are to navigate a complicated road between pressure from the Trump government to lower prices and the needs of their economy for greater profits. There is a good chance that Russia and Iraq will decide that accepting the cuts will benefit their interests. A few months ago, it seemed the Saudis had steered the market to more comfortable price levels for their own purposes, coordinating production cuts with Russia and other countries. Now the Saudis are again in the uncomfortable position of being pressured by US shale producers.

A descent that does not stop

Pending the OPEC meeting on December 6, major oil indices continued to fall on fears of oversupply

Brent, which is extracted mainly from the North Sea, fell more than 4% yesterday, although producers have analyzed to reduce production

US $ 58.80 per barrel

Price plummeted due to fear of oversupply

30% drop in one month

In October, it reached its highest level since 2014, when it was believed that supply would fall

The WTI (West Texas Intermediate) that is extracted in Texas and Oklahoma, continued yesterday the process of fall that has been recording for seven weeks

$ 50.42 per barrel

It was the value that arrived yesterday for deliveries in January, a loss of 6.96% in one day

34% drop in one month

On October 3, Texas WTI peaked in several years

AFP, AP and Reuters Agencies

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