Oil Plunges 6 Percent as Economic Slowdown Fears Grip Market

December 24, 2018 Updated: December 24, 2018
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NEW YORK— prices plunged more than 6 percent to the lowest in more than a year on Dec. 24, pulling back sharply late in the session as fears of an economic slowdown rattled the market.

U.S. crude futures and global benchmark Brent fell to the lowest since 2017 during the session, putting both benchmarks on track to lose about 40 percent in the quarter.

“What’s happening in the stock market is raising fears that the economy is grinding to a halt and thereby will basically kill any future oil demand,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “They’re pricing in a slowdown in the economy if not a recession, with this drop.”

The price decline during the quarter is likely to cause producers to throttle back on their output, he said.

U.S. crude futures have hit the lowest since June 22, 2017, as jitters have grown about the impact of an escalating U.S.-China trade dispute on global growth and crude demand. Brent crude is at its lowest since Aug. 17, 2017.

Markets across asset classes have come under pressure recently and investors have flocked to safe-haven assets such as gold and government debt at the expense of crude oil and stocks.

U.S. crude futures settled at $42.53 a barrel, down $3.06 or 6.7 percent in the session. Brent crude futures settled down $3.35, or 6.2 percent at $50.47 a barrel. The market settled early ahead of the Christmas holiday.

Brent fell 11 percent last week and hit its lowest since September 2017, while U.S. futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 percent for the quarter.

The macroeconomic picture and its impact on oil demand continue to pressure prices. Global equities have fallen nearly 9.5 percent so far in December, their biggest one-month slide since September 2011, when the euro zone debt crisis was unfolding.

The U.S.-China trade dispute and the prospect of a rapid rise in U.S. interest rates have brought global stocks down from this year’s record highs and ignited concern that oil demand will be insufficient to soak up any excess supply.

The Organization of the Petroleum Exporting Countries and allies led by Russia agreed this month to cut oil production by 1.2 million barrels per day from January.

Should that fail to balance the market, OPEC and its allies will hold an extraordinary meeting, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Dec. 23.

Oil ministers are already taking to the airwaves with a ‘price stability at all cost’ mantra,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

 

By Jessica Resnick-Ault