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‘The only way is down’: Oil’s slump could get much worse amid oversupply concerns, analysts say

Oil prices are likely to fall even further over the coming weeks, analysts told CNBC, as a sharp sell-off in global equities combines with intensifying fears about a market that could soon to be awash with crude.

The latest wave of energy market selling comes amid reports of swelling inventories and forecasts of record U.S. and Russian output. Heightened worries of a possible economic slowdown in 2019 have also added downward pressure to the value of a barrel of oil.

“The only way is down,” Tamas Varga, senior analyst at PVM Oil Associates, said in a research note published Tuesday.

“There are lots of variables regarding next year’s oil balance but based on available data, information and sentiment, it is fair to say that any price rally will be met by fierce resistance from the sellers’ side,” Varga said.

‘Uncertainty and volatility reign once again’
Brent crude fell as much as 4 percent to as low as $57.20 a barrel on Tuesday, on track to register its third consecutive session of declines. The international benchmark has since trimmed some of its losses to trade down 2.7 percent.

Meanwhile, U.S. West Texas Intermediate (WTI) dipped further below $50 a barrel on Tuesday, after settling below the psychologically important level for the first time in more than a year in the previous session. U.S. crude stood at $47.94 at around 11:00 a.m. ET, trading 4 percent lower.

Both oil benchmarks have crashed more than 30 percent since reaching a peak in early October, largely because of swelling global inventories.

“For a brief period, the energy market in 2018 bore all the hallmarks of having stabilized with some sense of normalcy returning but all that changed in October,” analysts at UBS said in a research note published Monday.

“Uncertainty and volatility reign once again,” they added.

In November, energy markets witnessed an unprecedented run of 12 trading days of WTI losses, while the value of Brent crashed more than $20 from a high of just over $86 a barrel.

OPEC meeting
A closely-watched meeting of major producers earlier this month was expected to soothe growing market concerns about oversupply in 2019.

But, the deal reached by OPEC and non-OPEC members in a bid to boost the market is yet to have its desired effect. The energy alliance agreed to take 1.2 million barrels per day (bpd) off the market for the first six months of 2019.

The 15-member OPEC cartel said it would reduce its output by 800,000 bpd, while Russia and the allied producers will contribute a 400,000 bpd reduction.

However, the cutbacks do not go into effect until January, and Russia has warned that it will only gradually taper off output.

“Some kind of short-covering can happen any time (from) now until the end of the year but no long-term joy is on the horizon for oil bulls,” PVM Oil Associates’ Varga said.
Source: CNBC

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