Oil prices have fallen nearly two per cent, echoing the weakness in global stock markets as the focus returned to demand growth concerns and crude prices erased some of the gains made last week on an OPEC-led decision to cut output.
A gauge of global equities stumbled, putting it on track for its fifth straight daily decline, as losses in Europe and Asia extended to Wall Street on new signs the US-China trade spat was impacting world economic growth.
The market was also weighed down by confusion stemming from British Prime Minister Theresa May’s postponement of a parliamentary vote on her Brexit deal and sluggish data from the world’s largest economies including the US, China, Japan and Germany in recent days.
‘The stock market and oil market correlation is back on today,’ said John Kilduff, a partner at Again Capital Management in New York.
‘These worries about the global economy and the demand outlook that follows on that for oil are a bigger and bigger negative for the market.’
Brent crude oil futures fell 75 cents to $US60.96 a barrel, while US futures fell 95 cents to $US51.66 a barrel.
Prices closed 3 per cent higher on Friday after the Organisation of the Petroleum Exporting Countries and some non-OPEC producers, including heavyweight Russia, said they would cut oil supply by 1.2 million barrels per day from January.
The deal will be signed in three months’ time in Saudi Arabia, when OPEC and its allies will decide on extending the agreement after six months, the UAE’s energy minister said on Monday.
‘Friday’s agreement was a seemingly good one, or maybe we should say the best one under the current circumstances,’ Tamas Varga, a strategist with PVM Oil Associates, said.
‘As good as it looks, our view is that it will not be able to provide long-term price supports because it could not help global oil inventories deplete.’
Global equities have fallen by nearly 8 per cent so far this year, battered by concern about slowing corporate earnings and the threat to the broader economy from an escalating trade dispute between the United States and China.
A steep increase in the pace of crude supply growth this year, especially in the world’s three largest producers – the United States, Saudi Arabia and Russia – has made a number of analysts wary about the prospect of demand being sufficient to mop up extra oil.
‘As usual, prices are not a target of OPEC policy, but our takeaway is that current price levels largely meet the interests of most participating countries,’ consultant JBC Energy said.
Edward Bell of Emirates NBD bank said ‘the scale of the cuts … isn’t enough to push the market back into deficit’ and that he expected ‘a market surplus of around 1.2 million bpd in quarter one with the new production levels’.
Oil prices have fallen sharply since October on signs of an economic slowdown, with Brent losing almost 30 per cent in value.