Oil futures dropped Tuesday, with U.S. benchmark prices headed for their lowest finish in six weeks as traders focused on Saudi Arabia’s pledge to play a “responsible role” in energy markets, despite international criticism over the killing of dissident journalist Jamal Khashoggi.
A China-led global equity rout was also seen weighing on sentiment, putting pressure on assets perceived as risky, including most commodities. U.S. stock indexes moved sharply lower, with the Dow Industrials off more than 400 points.
“Crude oil has been declining on concerns over excessive supply in the months ahead, with the risk-off tone stemming from the equity markets also not helping the cause,” said Fawad Razaqzada, technical analyst at Forex.com.
West Texas Intermediate crude for December delivery CLZ8, -2.61% on the New York Mercantile Exchange fell $1.52, or 2.2%, to $68.74 a barrel. It was headed for its lowest settlement since Sept. 10. December Brent crude LCOZ8, -2.32% the global benchmark, was off $1.76, or 2.2%, to $78.07 a barrel on the ICE Europe exchange, looking at its lowest finish since Sept. 17.
In a recent interview with Russian news agency TASS that also served to keep a lid on oil prices Monday, the Saudi energy minister Khalid al-Falih said Saudi Arabia would increase crude production to 11 million barrels a day, compared with its current average of 10.7 million barrels a day. Al-Falih said his job was to implement the government’s “constructive and responsible role” in stabilizing the world’s energy markets.
While several U.S. lawmakers have called for exploring possible sanctions on Saudi Arabia, the Trump administration has been seen as reluctant to pursue measures, particularly as renewed sanctions on Iran take full effect next month.
The backlash could grow after Turkish President Recep Tayyip Erdogan on Tuesday described the killing of Khashoggi as a “vicious, violent murder” and said Turkey had “strong evidence that this murder was planned.” After initially denying any involvement in the disappearance, the Saudis said Friday that the journalist, a U.S. resident, died following an altercation inside the Saudi consulate in Istanbul on Oct. 2.
Meanwhile, the move by the Saudis to boost output would help ease a fourth-quarter supply shortage as U.S. sanctions against Iran come into force, said analysts at Commerzbank.
While Iran continues to express doubts about the ability of other oil producers to compensate for the shortfall in Iranian oil exports, data showing a reduction in speculative long positions and the negative price action “indicate that the market isn’t nearly as nervous as it was just a few weeks ago,” they said.
Traders are also awaiting data on U.S. crude supplies. Inventories have risen for four straight weeks and are expected to swell further for the week ended Oct. 19, with analysts polled by S&P Global Platts expecting the Energy Information Administration to report a rise of 3.3 million barrels for crude stocks. They expect supply declines of 1.5 million barrels for gasoline and 2.45 million barrels for distillates.
The American Petroleum Institute, an industry trade group, will release its weekly inventory data late Tuesday, with the a report from the EIA due Wednesday morning.
Meanwhile, on the charts, the 200-day moving average of $67.40 a barrel for Nymex crude futures is now within striking distance, said Robert Yawger, director of energy at Mizuho Securities U.S.A., in a note, observing that the average hasn’t been violated in over a year.
In other energy trade, November gasoline RBX8, -2.19% fell 2.3% to $1.862 a gallon, while November heating oil HOX8, -1.70% was off 2% to $2.272 a gallon.
November natural gas NGX18, +2.58% was up 2.3% at $3.212 per million British thermal units.
Providing critical information for the U.S. trading day. Subscribe to MarketWatch's free Need to Know newsletter. Sign up here.
