Crude oil is finishing its worst month in at least 20 years, devastated by a perfect storm of bearishness.
Crude oil futures (@CL) lost more than one-fifth of their value in November. That’s the biggest drop since TradeStation’s data begins in 1997, exceeding even the bloodletting of October 2008. (See chart below.) The selloff raises the stakes for global drillers at OPEC’s big meeting on December 6.
Supply, demand, geopolitics, sentiment and economic data conspired to cause the decline:
- Supply: The Energy Department’s weekly inventory reading has grown for 10 straight weeks. Most of those gains were also bigger than forecast, which is bearish for price.
- More supply: Faster-than-expected gains by U.S. shale fields caused the government to move forward projections for domestic production passing 12 million barrels a day.
- And more supply: Baker Hughes’ count of domestic oil rigs in operation reached 888, a total last seen in March 2015.
- Demand: OPEC lowered its estimate of global oil demand for the fourth straight month. Remember, this has occurred against a backdrop of trade wars and weaker economic activity in China.
- Sentiment: Speculative positions in the futures market flipped from bullish to increasingly bearish, according to analysis by Reuters in mid-October.
- Geopolitics: We entered November worried about sanctions locking millions of Iranian barrels out of the market. But then President Trump issued waivers to countries like India. Even frequent media critics praised the White House for outsmarting OPEC on that one!
- Economic data: Not recessionary, but definitely weaker. Jobless claims, for instance, rose more than expected to their highest level in six months. Japanese and European factory data dropped more than feared to their worst levels in over a year. Durable goods crumbled, and the OECD cut its outlook for global growth in 2019.
In conclusion, a slew of factors combined to hammer oil in November. Much of the move was anticipated by Market Insights weeks in advance. Be sure to read our site every day for more valuable news and analysis — not just on energy but on all sectors.