Oil fell for a third day on Feb. 6, as a rout in global equities triggered losses across bonds, cryptocurrencies and commodities, although the crude price is in positive territory so far this year.
Even with Wall Street stocks posting their largest one-day fall since late 2011 on Feb. 5 and measures of volatility spiking to multi-year highs, reflecting heightened investor nervousness, oil has not suffered to the same extent.
Brent crude futures were down 66 cents on the day at $66.96 a barrel (bbl) by 5:55 a.m. CST (11:55 GMT), but are still up 1% so far in 2018. U.S. West Texas Intermediate crude futures fell by 55 cents to $63.60.
Since the S&P 500 hit a record high on Jan. 26, the index has lost 8%. Oil has shed 4.5%, while cryptocurrency bitcoin has lost half its value.
A factor that could insulate oil to some extent against a bigger rout is the structure of the forward curve, where the prompt futures contract is trading well above those for delivery further in the future.
"We know that speculative positions both in terms of contracts and in allocated dollars are at an all-time high. Thus a real pain-trade has not yet hit the oil market," SEB head of commodity strategy Bjarne Schieldrop said.
"Longs have not yet started to flock to the exit door. If that happens, it will make the buying opportunity even better for the oil consumers who buy oil on the forward curve."
Financial markets sank on Feb. 5 after a sharp rise in U.S. bond yields raised concern over a possible increase in inflation and potentially higher interest rates.
Oil has been caught between the opposing forces of a 1.8 million bbl/d cut in supply by OPEC and Russia, and a surge in U.S. crude output above 10 million bbl/d, its highest since the 1970s.
There is also a seasonal downturn in demand, as many refineries shut for maintenance at the end of the peak-consumption winter season in the northern hemisphere.
"It is, however, worth remembering that global oil demand is set to grow at a healthy rate this year, that OPEC and its 10 non-OPEC peers are impressively disciplined at keeping their quotas and that geopolitics also helps to balance the supply/demand equation," PVM Oil Associates strategist Tamas Varga said.
"For these reasons, although the current sentiment has turned negative and lower prices are likely in the immediate future, the downside potential is limited, too."
Recommended Reading
Kissler: OPEC+ Likely to Buoy Crude Prices—At Least Somewhat
2024-03-18 - By keeping its voluntary production cuts, OPEC+ is sending a clear signal that oil prices need to be sustainable for both producers and consumers.
Shell’s CEO Sawan Says Confidence in US LNG is Slipping
2024-02-05 - Issues related to Venture Global LNG’s contract commitments and U.S. President Joe Biden’s recent decision to pause approvals of new U.S. liquefaction plants have raised questions about the reliability of the American LNG sector, according to Shell CEO Wael Sawan.
Baker Hughes Declares Increased Quarterly Dividend
2024-02-02 - Baker Hughes’ dividend represents a 5% growth rate, or $0.01, over the previous quarter’s dividend.
NGL Growth Leads Enterprise Product Partners to Strong Fourth Quarter
2024-02-02 - Enterprise Product Partners executives are still waiting to receive final federal approval to go ahead with the company’s Sea Port Terminal Project.
enCore Energy Appoints Robert Willette as Chief Legal Officer
2024-02-01 - enCore Energy’s new chief legal officer Robert Willette has over 29 years of corporate legal experience.