Oil’s decline accelerated as the deepening slump in equity and debt markets undermined the outlook for energy demand against the backdrop of swelling U.S. crude production.
Futures fell as much as 2.7% in New York on Monday. Stock markets tumbled around the world, and confidence crumbled in emerging markets and the riskiest forms of debt. Meanwhile, the number of rigs searching for crude in American shale fields jumped to the highest in more than five months last week, a harbinger of ever-greater oil output.
“This is an everything-getting-sold kind of situation,” John Kilduff, founding partner at Again Capital LLC, said in a phone interview. “The selloff in the equity market is bleeding over to commodities on fears of economic prospects going forward.”
West Texas Intermediate crude, the U.S. benchmark, topped $66/bbl this year for the first time since 2014, extending a rally driven by the extension of production caps by the Organization of Petroleum Exporting Countries and allied producers. While crude’s strong start to the year was also helped by dwindling American inventories and a weakening dollar, analysts have been cautioning about the potential for a surge in U.S. shale output.
“There is more supply coming to this market, and we are entering the period of the refineries’ maintenance,” Kilduff said. “We are going to see a hit to demand globally that is lowering global prices today.”
WTI for March delivery dropped $1.70 to $63.75/bbl at 1:30 p.m. on the New York Mercantile Exchange. Total volume traded was about 68% above the 100-day average.
Brent for April settlement lost $1.23 to $67.35 on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $3.90 to April WTI.
U.S. drillers last week added six rigs to raise the number of machines drilling for crude to 765, the highest since Aug. 11, Baker Hughes data showed Friday. That may lead to a further increase in U.S. crude production, which breached 10 MMbpd in November to the highest level in more than four decades.