Crude oil markets start the trading in 2019 with a decline of more than 1.5%, negatively impacted by the rising US mining and fears of a slowdown in the global economy. At the same time, production activity in China, which is the world’s largest oil importer, is shrinking.
Brent oil futures fell by 0.81 USD, or 1.51%, to 52.99 USD per barrel, while the US crude oil WTI dropped by 0.73 USD, or 1.61%, to 44.68 USD per barrel.
On the physical oil markets, Dubai’s crude oil was traded for an average of 57.318 USD per barrel in December, which is the lowest value since October 2017.
Similarly, Malaysia’s Petronas set the official selling price of a basket of December-loading Malaysian crude grades at 62.79 USD per barrel, the lowest since October 2017, the state oil firm said on Wednesday.
According to traders, the futures prices are falling due to oversupply expectations against the rising US oil production and fears of a slowdown in the global economy.
The production activity in December has weakened in Asia, including in China, as the Sino-American trade war and the slowdown in China’s demand has struck production in most economies. This is a tough start of the new year for the fastest-growing region in the world.
The crude oil prices ended in 2018 with declines for the first time since 2015 after a volatile fourth quarter, during which a number of buyers left the market due to mounting fears of oversupply and mixed signals about renewed US sanctions against Iran.
For the year, the futures on WTI collapsed by almost 25%, while the Brent variety wiped out almost 20%.
The prospects for 2019 are also quite uncertain, according to the analysts, including business concerns over the US-China conflict and Brexit, as well as political instability in the Middle East.
According to the latest poll among market participants, the crude oil prices are expected to trade below 70 USD per barrel in 2019.
In terms of production, all eyes will be on the growing US production and the OPEC+ quota deal.
If the Organization of the Petroleum Exporting Countries (OPEC) does not follow through with its commitment to reduce oil production throughout this year, Brent crude prices could struggle to rise.
In recent months, the Saudis increased production by more than 1 million barrels per day. Now, the kingdom will aim to cut about 900,000 barrels per day in just two months. With oil prices struggling, some have said the kingdom needs Brent crude to rise significantly to balance its budget.
US crude oil production
Last year, the US crude oil output hit an all-time high of more than 11.5 million barrels per day. The mining rose to 4.7 million barrels per day in Texas, 1.37 million barrels per day in North Dakota and 772,000 barrels per day in New Mexico. Output in the offshore Gulf of Mexico fell to 1.74 million barrels per day.
Weekly data, which is more open to revisions, was reported last week at 11.7 million barrels per day in late December by the EIA.
The shale producers must not be underestimated and the wider US oil industry in general. Too often this year the market pushed stories (pipelines, frack crews, truck drivers, etc.), yet US oil production will have grown by a massive 2+ million barrels per day between 1.1.2018 and 1.1.2019.