Oil prices fell sharply in morning trade on Tuesday, with the key benchmarks WTI and Brent crude falling more than 4 percent as Dow Jones, S&P 500, and Nasdaq futures came tumbling down.
The stock market correction of roughly 1.6% is due to a culmination of factors, including unfavorable earnings reports from Caterpillar and 3M, poor performing Asian markets, interest rate hikes, and the U.S./China trade dispute.
The dampened economic spirits in the overall stock market managed to seep into the oil industry despite fears that increased tensions between the United States and Saudi Arabia over the murder of Jamal Khashoggi may cause Saudi Arabia to withhold oil production in retaliation. While restricted Saudi output would be a hard blow to the United States’ efforts to bring Iran’s oil exports to zero come November when the latest round of sanctions kick in, it would also mean a tighter market that would, if realized, send prices higher.
At 12:45 PM EDT, WTI was trading down 4.63% (-$2.15) at $66.15, while Brent crude was trading down 4.45% (-$2.51) at $76.28. The Canadian crude index saw an even more sharp decline of nearly 11 percent.
Oil prices took their cue today not just from the stock market, with Saudi Arabia’s promise to play a “responsible role” in the energy market was interpreted to mean it would increase production as needed to make up for losses in Iran and Venezuela.
Despite Saudi Arabia’s non-specific promise to produce responsibly, in truth, OPEC has so far not made good on its June promise to increase production by 1 million bpd. While Saudi Arabia has increased production by over 500,000 bpd compared to May volumes, Iran, Venezuela, and Angola reported a drop in production of over 500,000 bpd.
By Julianne Geiger for Oilprice.com
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