Morning Market Overview
New York Mercantile Exchange oil futures nearest delivery and Brent crude on the Intercontinental Exchange sold off hard yet again Thursday, with West Texas Intermediate and Brent futures tumbling to new lows amid a dominating bearish sentiment that oil demand will suffer in 2019 under the weight of a slowing world economy while U.S. tight oil production climbs anyway, undercutting this month’s production agreement by the Organization of the Petroleum Exporting Countries, Russia and nine other non-OPEC oil producers.
The Federal Open Market Committee’s announcement Wednesday that it would hike the federal funds rate a fourth time this year, boosting the overnight borrowing rate 25 basis points to 2.5% was the latest body blow to a slumping market. Central bank officials deemed statistics showing a strong U.S. economy and robust job market with unemployment at a 49-year low warranted tightening monetary policy, shrugging off ongoing bloodletting in equities markets which are down again today following Wednesday afternoon’s steep downside reversal. Equities have sold off hard in the fourth quarter amid trade tensions between the United States and China and a strong U.S. dollar, which reached a nearly 18-month high late last week, slow-footing world economic growth.
The Fed acknowledged the U.S. economy could face headwinds in 2019 because of slowing global growth, indicating it would likely raise the interest rate only twice next year, down from an expected four in September, and once in 2020. So, Fed Chairman Jerome Powell said the central bank tightened monetary policy to avoid overheating the market while simultaneously warning about a potential cooling U.S. economy in 2019. The elixir was not well received.
On Monday, the Energy Information Administration projected U.S. tight shale oil output in seven regions would increase 134,000 bpd from December to 8.032 million bpd in January, undercutting a six-month production agreement by OPEC+ reducing output early next year by 1.2 million bpd.
During the four weeks ended Dec. 14, U.S. crude production averaged 11.65 million bpd, up 1.91 million bpd or 19.6% against the comparable year-ago period. NYMEX February WTI futures tumbled $2.29 to a $45.88 bbl 17-month low settlement on the spot continuous chart, with ICE February Brent down $2.89 to a $54.35 bbl 15-month spot settlement low. NYMEX January ULSD futures fell 5.57cts to a fresh 14-month spot low settlement at $1.7497 gallon, and January RBOB futures settled at a 25-month low on the spot continuous chart at $1.3224 gallon, down 6.39cts.