Oil prices fall further after Donald Trump hails Saudi Arabia ties

US oil prices fell further after Donald Trump emphasised strong ties with the Saudi Arabian government.

US oil prices plunged to their lowest level in more than a year after President Donald 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 last year. Brent, the international benchmark, slid 6.4 per cent to $US62.53 a barrel.

“After the US, Saudi Arabia is the largest oil-producing nation in the world,” Mr Trump said. “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 Mr Trump’s remarks and related comments about the US remaining a “steadfast partner” of Saudi Arabia, despite the killing of a dissident journalist in October.

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 the sell-off, they compounded existing concerns about oversupply, they said.

Oil was “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 picked up again on Tuesday as jitters about the health of the global economy prompted investors to dive into safer assets.

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

Brent crude last traded at $US63.53

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 inventories, which now stand at 442 million barrels, the most in almost 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, at 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 moves. 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 below $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.

“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.

Investors are now turning to whether the OPEC and other major producers like Russia will agree to cut output when they meet on December 6.

Analysts say 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 kept production unchanged — a decision that sent crude prices crashing.

The Wall Street Journal