Oil is steady but weak fundamentals keep the market under pressure

Singapore — Oil prices steadied on Monday after plunging nearly 8% in the previous session, but remain under pressure with Brent crude below $60 a barrel amid weak fundamentals and struggling financial markets.

Front-month Brent crude oil futures were at $59.23 a barrel at 2.02am GMT, up 43c, or 0.7%, from their last close.

US West Texas Intermediate (WTI) crude futures, were up 11c, or 0.2%, at $50.53 a barrel.

The gains did little to make up for Friday’s sell-off, which traders have already dubbed “Black Friday”.

Reacting to Friday’s falls in Brent and WTI, China’s Shanghai crude futures on Monday fell by 5%, hitting their daily downside-limit.

Greg McKenna, an Australian-based independent financial analyst, said there had been an “utter capitulation in crude oil” markets.

The downward pressure comes from surging supply and a slowdown in demand growth which is expected to result in an oil supply overhang in 2019.

Wider downturn

Oil markets are also being affected by a downturn in wider financial markets.

In a note released on Sunday, Morgan Stanley said that “2018 clearly marked the end of the 10-year Asia credit bull market due to tightening financial conditions in Asia (especially China), and we expect this to remain the case in 2019”.

“We don’t think that we are at the bottom of the cycle yet,” the US bank said.

Oil markets have also been weighed down by a strong US-dollar, which has surged against most other currencies during 2018, thanks to rising interest rates that have pulled investor money out of other currencies and also assets like oil, which are seen as more risky than the greenback.

“Anything denominated against the dollar is under pressure right now,” said McKenna.

Another risk to global trade and overall economic growth is the trade war between the world’s two biggest economies, the US and China.

“The US-China trade conflict poses a downside risk as we forecast the US to impose 25% tariffs on all China imports by the first quarter of 2019,” US bank JP Morgan said in a note published on Friday.

Reuters