Oil prices fell as much as 4 percent in volatile trading on Tuesday as planned production curbs by global producers, led by Saudi Arabia and Russia, failed to allay concerns about oversupply stoked by swelling US shale output. Fears about weaker oil demand amid a potential slowdown in the global economy have also added to worries about how effective the supply cuts agreed earlier this month will be. The fall in oil comes amid broader pressure on global equities due to persistent worries over how the US-China trade war could hit economic growth. “The effect of the announced production cuts after Opec’s meeting [earlier this month] has evaporated entirely,” said Carsten Fritsch at Commerzbank. “Prices are continuing to nose-dive.”
Brent crude, the international benchmark, declined as much as 4 percent to as low as $57.20 a barrel in its third straight day of declines and was close to these levels at the end of the London trading day. West Texas Intermediate, the US benchmark, had by then weakened 5 percent to $47.37, the lowest level since September 2017. Global producers have agreed to cut production by 1.2m barrels a day to halt a more than 30 percent slide in oil prices, since hitting $86 a barrel in October.
The move came in defiance of US president Donald Trump, who had called for Opec to keep output elevated and prices low. But record output from Saudi Arabia — of above 11m barrels a day — since July has added to the pricing pressure caused by the decision by the US to issue waivers to buyers of Iranian oil to allow more oil than anticipated on to the market. Iranian output and exports have still fallen sharply this year and other producers such as Venezuela have seen a slide in their supplies because of turmoil in their countries. Production and exports from Libya’s largest oilfield, El Sharara, have also been halted due to security issues.
Recommended Markets Insight David Sheppard US shale juggernaut will stomp on Opec’s oil plans But this has not been enough to help firm up oil prices as hoped by global producers, which largely rely on revenues from crude exports to support their economies. Data from the US energy department showed that the US has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a weekly record of 11.7m b/d. This has fuelled doubts about the effectiveness of the supply curbs and raised questions among traders and analysts about how long Opec and its allies will be willing to trim its supplies to benefit US rivals. Market participants are also questioning how much Russia, a key member of a global oil alliance, will pull back on its production, after also hitting a record level above 11.4m b/d in December.