Oil prices plunge almost 7pc to lowers point in more than a year amid Trump’s Saudi comments

US oil prices have plunged to their lowest level in more than a year after Trump emphasised strong ties with Saudi Arabia.

An employee passes a storage tank at an oil delivery point operated by Bashneft PAO in Russia. Picture: Bloomberg

US oil prices plunged to their lowest level in more than a year Tuesday after President Trump emphasised strong ties with the Saudi Arabian government.

West Texas Intermediate for January delivery fell 6.6 per cent to $US53.43 a barrel on the New York Mercantile Exchange, its lowest settle price since October 2017. Brent, the international benchmark, slid 6.4 per cent to $US62.53.

“After the United States, Saudi Arabia is the largest oil-producing nation in the world,” Mr. Trump said in a statement. “They have worked closely with us and have been very responsive to my requests to keeping oil prices at reasonable levels — so important for the world.”

Oil extended declines following that statement and Mr. Trump’s related remarks about the US remaining a “ steadfast partner” of Saudi Arabia despite the killing of a dissident journalist last month.

Some market participants said Mr. Trump’s comments could be an attempt to keep Saudi Arabia from cutting production at the December meeting among OPEC and non-OPEC members. While the comments alone didn’t catalyse Tuesday’s sell-off, they compounded existing concerns about oversupply, they said.

Oil is “on skids right now,” said Mark Benigno, director of energy trading at INTL FCStone. “Maybe that put a little grease on it, but everything keeps pointing in the same direction fundamentally at the moment.”

Bearish momentum in the oil market had picked up again Tuesday morning as jitters about the health of the global economy prompted investors to dive into safer assets.

Oil prices were already in a bear market coming into the week, having declined more than 20 per cent since early October. The market had stabilised recently, with WTI rising in three of the last four sessions, until Tuesday, when a tumble in equities triggered another leg lower in crude.

“We’re following equities,” said Peter Cardillo, chief market economist at Spartan Capital. “The market had found a floor over the past couple days, but today, with equity markets continuing to move toward bear-market territory, anything is fair game.”

Worries about a global slowdown are rising just as oil supplies have become more plentiful. The Energy Information Administration has reported eight straight weeks of increases to US crude oil inventories, which now stand at 442 million barrels, the most in nearly a year.

“The demand risk was there already, in the sense that the discussions about trade wars and potential impact on global growth have been there for a while,” said Olivier Jakob, founder of Switzerland-based consulting firm Petromatrix. “The big new input over the last six weeks has been the rebound in US crude oil supplies.”

Selling prompted by strategies in the options market may have exacerbated the move. In a note last week, Goldman Sachs analysts wrote that swap dealers sold hedging strategies to oil producers in the form of put options, which allow the buyer to sell crude at a set price like $US60.

As oil prices fell under $US60 last week, dealers became at risk of holding crude positions sold to them by producers. This spurred the dealers to offset those positions by selling oil contracts in the futures markets. According to the Goldman Sachs note, similar sharp moves downward in oil occurred in 2007 and 2012.

Oil prices breaking under $US55 — another popular level for crude options — on Tuesday spurred another round of selling by the dealers, traders said.

“You can tell that people are trying to get out of [these positions] and they can’t, so they have to hedge them,” said Scott Shelton, a broker at ICAP PLC.

Investors are now turning to whether the Organisation of the Petroleum Exporting Countries, and other major producers like Russia, will agree to cut output when they meet on Dec. 6.

Analysts say that a decision to keep pumping crude at current levels could cause another slide in prices, similar to four years ago when OPEC and its allies shocked the market by keeping production unchanged — a decision that sent crude prices into a tailspin.

Bullish investors are also hoping the trend toward higher US inventories will start to reverse, perhaps as early as this week, with US refineries wrapping up the fall maintenance season, meaning they can take in more oil for processing.

“We may start to see an inventory turnaround, and that should help prices,” Spartan’s Mr. Cardillo said.

—Sarah McFarlane contributed to this article.

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