Market Report & Analysis for 11/5/2018 Morning Edition

Morning Market Overview

New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange again sold off Thursday, plunging to multi-month low settlements on the first day of November as worry over a global oil supply shortage in the fourth quarter amid lost Iranian oil exports has been replaced by sharp production increases and data showing a slowdown in world economic growth.

A nonstop stream of bullish news late in the third quarter, early fourth quarter about supply tightness in November and December amid U.S. sanctions on Iranian oil exports and talk of Brent crude reaching $90 bbl in December, potentially touching $100 bbl, has been replaced by headlines reporting production gains and slowing economic growth. The transition in the news flow lagged long liquidation by noncommercial traders, with speculators steadily unloading long positions since late September, and have reduced a net-long position in West Texas Intermediate futures to a one-year low.

Open interest in WTI futures is at a more than 16-month low, the most recent data from the Commodity Futures Trading Commission shows. U.S. sanctions on Iranian oil exports begin Monday, and expectations are that the latest round of sanctions would reduce Iran’s oil exports by 400,000 to 700,000 bpd from September after falling 800,000 bpd from April. Venezuela’s oil production continues to decline amid mismanagement and economic collapse. Geopolitics in the oil trade are usually associated with spiking oil prices.

However, the October decline in global and domestic oil prices was driven by geopolitics and economics. Oil production by Saudi Arabia and Russia have surged reports show, with the Saudis after being implicated in the murder of a prominent dissident on Oct. 2 likely changed their playbook to avoid further condemnation.