Oil’s set for its biggest monthly drop since 2016 as a looming slowdown in the global economy haunts the market while U.S. inventories grow and producers relay mixed signals.
Futures in New York are poised for a drop of more than 9 percent in October, following two months of gains. A global equity rout and an escalating U.S.-China trade war are weighing on the outlook for growth and energy demand, dragging down prices that only weeks earlier surged to a four-year high. Concerns of a supply squeeze due to impending American sanctions on Iran eased after some other OPEC nations pledged to pump more.
“There are fears that China is about to become embroiled in a trade war with the U.S., which could push China into the biggest slowdown since the financial crisis and cripple oil demand,” said Neil Beveridge, an analyst at Sanford C. Bernstein.
While Saudi Arabia’s Energy Minister said the Organization of Petroleum Exporting Countries is in a “produce as much as you can mode,” an OPEC committee said it could cut supplies next year, spurring uncertainty in the market. In the U.S., inventories are forecast to climb for a sixth consecutive week. After breaching $76 a barrel earlier this month for the first time since 2014, New York’s West Texas Intermediate has lost over 10 percent.
WTI for December delivery traded at $66.45 a barrel on the New York Mercantile Exchange, up 27 cents, at 10:59 a.m. in London. The contract had declined more than 2 percent in the past two sessions. Total volume traded was about 8 percent below the 100-day average.
Brent for December settlement, which expires Wednesday, added 39 cents to $76.30 a barrel on the London-based ICE Futures Europe exchange. Prices are on course for a 7.9 percent drop this month, the biggest monthly loss since July 2016. The global benchmark crude traded at a $9.88 premium to WTI.
In the U.S., the industry-funded American Petroleum Institute was said to report crude inventories expanded by 5.69 million barrels last week. If it’s confirmed by the Energy Information Administration data on Wednesday, it will be a sixth consecutive week of gains, the longest streak of increases since March 2017.
Meanwhile, both Russia and Saudi Arabia have been raising production to ease shortages and to meet demands from U.S. President Donald Trump to lower prices. Russian Energy Minister Alexander Novak said he sees no grounds for reducing output and that there’s the risk of a deficit in crude markets, while the Saudis have already boosted supplies to 10.7 million barrels a day, near an all-time high.
Other oil-market news: Higher OPEC oil production and longer voyages are propelling the cost of chartering a supertanker. Just a month ago, hiring a supertanker for the benchmark Middle East Gulf-to-China route cost about $18,000 a day. That almost tripled to more than $51,000 a day this week, the highest level since at least early 2017. Mexico spent about 23.5 billion pesos ($1.2 billion) through the third quarter from its budget stabilization fund, which historically has been used almost exclusively to hedge forward oil prices, according to a quarterly report.