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Oil settles 4% lower Tuesday as traders focus on Saudi pledge to play ‘responsible role' in market

By Mayra P. Saefong

Petroleumworld 10 23 2018

Oil futures dropped more than 4% Tuesday, with U.S. benchmark prices at their lowest finish in about two months.

Traders focused on Saudi Arabia's pledge to play a “responsible role” in energy markets, despite international criticism over the killing of dissident journalist Jamal Khashoggi.

A China-led global equity rout was also seen weighing on sentiment, putting pressure on assets perceived as risky, including most commodities. U.S. stock indexes also fell Tuesday, but traded off session lows as oil futures settled.

“Crude oil has been declining on concerns over excessive supply in the months ahead, with the risk-off tone stemming from the equity markets also not helping the cause,” said Fawad Razaqzada, technical analyst at

West Texas Intermediate crude for December delivery CLZ8, -0.32%  on the New York Mercantile Exchange fell $2.93, or 4.2%, to settle at $66.43 a barrel. That was the lowest settlement since Aug. 20. December Brent crude LCOZ8, -4.50% the global benchmark, was off $3.39, or nearly 4.3%, to $76.44 a barrel on the ICE Futures Europe exchange, for the lowest finish since late August.

In a recent interview with Russian news agency TASS that also served to keep a lid on oil prices Monday , the Saudi energy minister Khalid al-Falih said Saudi Arabia would increase crude production to 11 million barrels a day, compared with its current average of 10.7 million barrels a day. Al-Falih said his job was to implement the government's “constructive and responsible role” in stabilizing the world's energy markets.

During the interview, he also said the Saudis want to sign a new cooperation agreement that is “open-ended,” with no fixed term, which would allow the Organization of the Petroleum Exporting Countries and non-OPEC countries to lift or lower production as needed to balance the market.

While several U.S. lawmakers have called for exploring possible sanctions on Saudi Arabia, the Trump administration has been seen as reluctant to pursue measures, particularly as renewed sanctions on Iran take full effect next month.

The backlash could grow after Turkish President Recep Tayyip Erdogan on Tuesday described the killing of Khashoggi as a “vicious, violent murder” and said Turkey had “strong evidence that this murder was planned.” After initially denying any involvement in the disappearance, the Saudis said Friday that the journalist, a U.S. resident, died following an altercation inside the Saudi consulate in Istanbul on Oct. 2.

Meanwhile, the move by the Saudis to boost output would help ease a fourth-quarter supply shortage as U.S. sanctions against Iran come into force, said analysts at Commerzbank.

While Iran continues to express doubts about the ability of other oil producers to compensate for the shortfall in Iranian oil exports, data showing a reduction in speculative long positions and the negative price action “indicate that the market isn't nearly as nervous as it was just a few weeks ago,” they said.

Traders were also awaiting data on U.S. crude supplies. Inventories have risen for four straight weeks and were expected to swell further for the week ended Oct. 19. Analysts polled by S&P Global Platts expect the Energy Information Administration on Wednesday to report a rise of 3.3 million barrels for crude stocks. They also expect supply declines of 1.5 million barrels for gasoline and 2.45 million barrels for distillates.

The American Petroleum Institute, an industry trade group, will release its weekly inventory data late Tuesday, ahead of the EIA's supply report.

Nymex crude futures have now dropped below their 200-day moving average, which Robert Yawger, director energy at Mizuho Securities U.S.A., pegged at $67.40. The 200-day moving average hasn't been violated in over a year, he said.

In other energy trade, November gasoline RBX8, -0.08%  fell 3.7% to $1.837 a gallon, the lowest for a front-month contract since late February, while November heating oil HOX8, -0.06%  lost 3% to $2.248 a gallon.

November natural gas NGX18, +0.28%  added 2.4% to settle at $3.212 per million British thermal units.


Story by Mayra P. Saefong from MarketWatch.
10 23 2018 19:36 GMT

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