Oil retreats as risk appetite shrinks after rally to bull market

Major oil trading houses are predicting the return of $100 crude for the first time since
Major oil trading houses are predicting the return of $100 crude for the first time since

Oil extended its retreat as investor appetite for risk assets shrank and uncertainty persisted over how much OPEC output will need to be cut to counter booming US shale supplies.

Futures in New York lost as much as 1.7%, after falling for the first time in 10 sessions on Friday. Equities slipped on Monday after the S&P 500 Index closed flat on Friday, before a slew of bank profit reports and an earnings season.

Worries that global growth may be slowing due to a US-China trade war and a partial American government shutdown that’s entered its fourth week are weighing on investor sentiment.

In the oil market, Saudi Energy Minister Khalid Al-Falih said the OPEC+ coalition that’s cutting output to shrink a glut will do more if needed and that the curbs are a "lifeline" to US shale drillers. Crude is still down over 30% from a four-year high in October even after a rally into a bull market earlier this month.

The CEO of Italian producer Eni SpA and Oman’s oil minister said that prices around $60 a barrel can be sustained on rising demand.

"Crude is reversing direction with the decline in equity markets as there are pre-earnings season jitters," said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda. "While the OPEC+ coalition has given more confidence that it will cut output in coming months, the market remains fragile and volatile while it waits for more news on US-China trade tensions."

West Texas Intermediate for February delivery declined as much as 89 cents to $50.70 a barrel on the New York Mercantile Exchange and traded at $50.85 at 3:41 pm in Singapore. It dropped 1.9% on Friday, snapping its longest rising streak in nine years.

Prices still ended 7.6% higher last week.

Brent for March settlement fell 76c to $59.72 a barrel on the London-based ICE Futures Europe exchange, after ending 6% higher last week. The global benchmark traded at a premium of $8.58 a barrel to WTI for the same month.

Earnings jitters

In the broader financial markets, US equity futures declined with Asian stocks on Monday. Some of the world’s biggest financial firms including Citigroup and Goldman Sachs and technology companies Taiwan Semiconductor Manufacturing and Mindtree are scheduled to report results this week.

Still topping the list of investor concerns is the trade friction between the world’s top-two economies that threatens to bring about a demand-crimping global growth slowdown.

China is seeking to resolve its spat with the US this year, Commerce Minister Zhong Shan said in an interview after three days of talks with the US last week.

Chinese Vice Premier Liu He is set to visit Washington for further trade talks later this month.

Meanwhile, the partial US government shutdown also continued to pull down market sentiment. A security checkpoint at Houston’s main airport closed as the impact of the shutdown broadened.

 

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