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5 reasons oil prices are in a history-setting tailspin

MarketWatch logo MarketWatch 11/14/2018 Myra P. Saefong

Video by CNBC

Rampant expectations for a global oil supply glut sent the U.S. benchmark to its lowest finish of the year.

December West Texas Intermediate crude (CLZ8) dropped $4.24, or 7.1%, to settle at $55.69 a barrel on the New York Mercantile Exchange on Tuesday, marking a historic 12th straight decline, deepening a descent into a bear market, defined as a drop of at least 20% from a recent peak.

Here are some of the key reasons that oil prices have staged a gut-wrenching drop, after posting a 52-week high back on Oct. 3:

  • Oversupply: The Organization of the Petroleum Exporting Countries raised its production in September by 100,000 barrels a day to 32.78 million barrels of oil a day—a one-year high, according to the International Energy Agency.
  • A surprise: Trump granted waivers to eight countries, allowing them to temporarily continue buying Iranian oil despite U.S. sanctions on the country’s energy sector which took effect Nov. 4.
  • Seasonality: A time of planned shutdowns at major crude-oil refineries for maintenance, is more active than normal, resulting in more crude in inventories amid a period that was already expected to see slowing demand
  • Trump: President Donald Trump has been consistently advocating for lower oil prices and on Monday issued a tweet urging for even lower prices
  • U.S. oil: U.S. production climbed by 400,000 barrels a day to a record 11.6 million barrels a day for the week ended Nov. 2, adding to oversupply worries

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Too far too fast? 

Patrick DeHaan, head of petroleum analysis at GasBuddy, says oil’s decline is likely overdone. Tuesday’s “market plunge was astounding and a dramatic turnaround in market psyche in the last month,” he said. Oil prices may still “go lower,” but it is “close” to a bottom, he said.

Read:Oil prices just did something never done before

Matt Badiali, senior research analyst at Banyan Hill Research, believes that the most influential oil player in the world, Saudi Arabia, is near the top of its production range and “can’t maintain this rate for long,” after Riyadh ratcheted up output in anticipation of stiffer Iranian sanctions.

Oil’s convulsions down have rattled investors, helping to engender fears of troubles in global economic growth and uncertainty in trade in the S&P 500 index (SPX) the Dow Jones Industrial Average (DJIA) and the Nasdaq Composite Index (COMP) at a time when those equity benchmarks are already reeling from an ugly October rout of their own.

Read:Here’s what U.S. waivers on Iran oil sanctions mean for the global crude market


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