Oil Prices Recover after Friday's 8 percent Decline

Oil prices recuperated some losses on Monday after falling nearly 8 percent last week amid worries that oversupply and declining demand could result in a supply glut next year.

January contract US Wes Texas Intermediate (WTI) crude futures gained 1.4 percent to $51.16 per barrel, while international benchmark Brent crude futures for February delivery rose 1.8 percent to $60.11 a barrel.

Oil prices’ optimism did little to make up for Friday’s selloff, which traders called Black Friday, as the Brent suffered its worst day in about three years, amid signs of surging global supplies. The US benchmark has dropped around 12 percent for the week.

WTI has slipped 34 percent of its value from its peak on October 3 to its low on Friday, while Brent has shed as much as 32 percent.

China’s Shanghai crude futures on Monday reacted to Friday’s losses in Brent and WTI by falling 5 percent to hit their daily downside-limit.

The downward pressure comes from rising supply and weakening demand growth which is expected to create an oil supply overhang in 2019.

Analysts stated that next year will be a choppy year for the market as questions surrounding the prospect of a slowing global economy and a supply surplus are expected to increase.

Even an expected supply cute led by the Organization of the Petroleum Exporting Countries (OPEC) following its meeting on December 6 might not be enough to counteract the bearish forces, they added.

Ministers from the OPEC are due to meet on December 6 in Vienna to discuss about the output policy for the next six months.

Officials from the group have been making increasingly frequent public announcements that the OPEC and its partners would begin limiting crude in 2019 to tighten supply and raise prices.

Recent reports stated that OPEC’s de facto leader Saudi Arabia is proposing to reduce output by about 1 million barrels per day (bpd).

More Downward Pressure

The downturn in broader financial markets is affecting oil prices as well.

A US investment banking firm said 2018 clearly marked the end of the 10-year Asia credit bull market due to tightening financial conditions in Asia, especially China, and they expect this to remain the case next year.

The US dollar has also added weight on oil prices, as it has been gaining momentum since late October. The greenback’s strength was driven by rising interest rates that have pulled investor cash out of other assets like crude, which are seen as riskier than the dollar.

Independent cross-asset market analyst Gregg McKenna stated that anything denominated against the dollar is under pressure right now.

Another risk to global trade and overall economic growth is the ongoing trade war between the US and China.

A US bank said the US-China trade conflict poses a downside risk as they forecast the US to impose 25 percent tariffs on all China imports by Q1 2019.

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