- Oil prices fall in line with another decline across global stock markets on concern about a U.S. government shutdown and a worsening world economy.
- US crude drops below $44 a barrel for the first time since July 2017.
- Investors flock to perceived safe-haven assets such as gold and government debt, at the expense of crude oil and stocks.
Oil fell on Monday, in line with another decline across global stock markets, which came under pressure from concern about a U.S. government shutdown and a worsening world economy.
The U.S. Senate has been unable to break an impasse over U.S. President Donald Trump’s demand for more funds for a wall on the border with Mexico, and a senior official said the shutdown could continue until Jan. 3.
Investors have flocked to perceived safe-haven assets such as gold and government debt, at the expense of crude oil and stocks.
U.S. crude futures lost $2.62, or 5.8 percent, to $42.97, falling below $43 for the first time since June 2017. Brent crude futureswere down $3.11, or 5.8 percent, at $50.71 a barrel by 1:28 p.m. ET, hitting a nearly 16-month low.
“Today is going to be a market of very thin liquidity and we don’t have strong convictions in such market conditions. Brent has managed to break 55.00 $/bbl at the end of last week, the short-term momentum is negative,” Petromatrix strategist Olivier Jakob said.
Brent fell 11 percent last week and hit its lowest since September 2017, while U.S. futures post its worst weekly performance in nearly three years.
The price of oil has already fallen by about 40 percent from October highs to its lowest since the third quarter of 2017, as investors have grown increasingly wary of the impact to global growth, and crude demand, from an escalating trade dispute between the United States and China.
The macroeconomic picture and its impact on oil demand continue to pressure prices. Global equities have fallen nearly 9.5 percent so far in December, their biggest one-month slide since September 2011, when the euro zone debt crisis was unfolding.
The trade dispute between the United States and China and the prospect of a rapid rise in U.S. interest rates have brought global stocks down from this year’s record highs and ignited concern that oil demand will be insufficient to soak up any excess supply.
OPEC and allies led by Russia agreed this month to cut oil production by 1.2 million barrels per day from January.
Should that fail to balance the market, OPEC and its allies will hold an extraordinary meeting, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Sunday.
“Oil ministers are already taking to the airwaves with a ‘price stability at all cost’ mantra,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.
The price drop has caused U.S. shale oil producers to curtail drilling plans for next year. The boom in shale output has made the United States the world’s largest oil producer, overtaking Saudi Arabia and Russia.
Physical prices for Brent have also fallen in the last six weeks, driven by a drop in demand from Chinese refiners in particular, which has weighed on the value of barrels of anything from North Sea to Nigerian crude.
“The recent weakness in the physical Brent structure can be attributed to a broader easing of purchases by Asian refiners at this point, with lower end-Q1 intake weighing on spot assessments, and we can expect this pressure to carry through over the coming weeks,” consultancy JBC Energy said in a report.
— CNBC’s Tom DiChristopher contributed to this report.
The United States Oil Fund LP (USO) was trading at $9.29 per share on Monday afternoon, down $0.28 (-2.93%). Year-to-date, USO has declined -22.65%, versus a -11.83% rise in the benchmark S&P 500 index during the same period.
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