Oil markets are crashing.

The US benchmark West Texas Intermediate (WTI) crude ended Friday’s session down $4.21, or 7.7 per cent, at $50.42. It has not been this low for more than a year now.

Friday witnessed the weakest point in WTI prices since mid-October 2017. International benchmark Brent crude too dropped $3.66, or 5.9pc, to $58.94. This was its lowest level since late October 2017.

Prices continued to drop the entire week. They slipped further after US crude inventories were reported to have swelled to their highest level.

US commercial crude oil inventories climbed by 4.9 million barrels to 446.91m barrels last week, the US Energy Information Administration (EIA) said on Wednesday, its highest level since December.

And in the meantime, the US crude oil production also stayed at a record 11.7mbpd, the US Energy Information Agency (EIA) reported.

As per reports, more US crude could also be heading to market as the US pipeline bottlenecks get cleared in the second half of 2019. The increase in US oil output has outpaced capacity to transport the additional crude.

The oil markets have also been weighed down by weak Asian and European markets as markets stay deeply concerned on account of the slowing global growth in the face of rising US interest rates and trade tensions.

All these have definitely contributed to the current market scenario.

Yet, a feeling seems emerging in certain quarters in the US that the Twitter war of President Trump on the Organisation of Petroleum Exporting Countries (Opec) and its kingpin Saudi Arabia, is generating its desired impact.

President Trump publicly thanked the Opec and indeed Saudi Arabia for lowering prices. In a tweet last Wednesday, he said: “Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let’s go lower!”

Trump had a point to prove, underlining before his domestic audience, the decision to standby beside the beleaguered Prince Mohammad bin Salman the Saudi crown prince is paying off.

A glut feeling has overtaken the oil markets. Prices are lower despite the pressure on the Iranian crude output. Goldman Sachs expects the heightened oil price volatility to continue at least into the next few weeks. There is expectation though that markets would be a little more stable after the Opec Vienna ministerial on December 6.

“It will take a fundamental catalyst for prices to stabilise and eventually trade higher,” Goldman’s analysts said in a note to customers, confirming what many already suspect: there are too few and too weak tailwinds for crude oil for the time being.

Opec knows it all well and is definitely worried. There were reports earlier that Saudi Arabia was endeavouring to galvanise support for an output cut of 1-1.4mbpd.

Saudi Arabia, in fact, had announced cutting its output by 500,000bpd in December.

But Khashoggi’s murder and its ramifications are haunting the oil markets too. A beleaguered and weakened MBS, for his own survival, desperately needs Trump’s support and cannot afford to annoy him.

The latest from Saudi Arabia is definitely not too positive for the crude markets. Citing industry sources, Bloomberg reported on Thursday that the Kingdom’s oil production since the beginning of this month has jumped to new highs, reaching 10.8-10.9mbpd.

In fact, supply, including production and inventory drawdowns, even reached 11mbpd on some days. Riyadh also seems to have put off the announced output cut of 500,000bpd, at least until January 19. Energy Minister Khalid Al- Falih while talking to reporters on Thursday said he sees weak oil demand in January and that the kingdom would respond then accordingly to cool the market anxiety.

And this is happening while pessimism about global economic growth as a driver of oil demand continues.

Reuters quoted good, old, friend, Fatih Birol, the global energy guru and the current Executive Director of the International Agency (IEA) as saying, that geopolitical instability and uncertain economic growth prospects were pushing oil markets into unprecedented uncertainty.

The slowdown in global economic growth is denting demand. Appetite for oil in the US has been “very robust,” but the IEA warned last week of “relatively weak” demand in Europe and developed Asian countries. And the IEA flagged a “slowdown” in demand in India, Brazil and Argentina because of high oil prices, weakening currencies and deteriorating economic activity.

Any possible failure on part of Opec, at its Dec 6 ministerial, to cut output could derail the markets further. But in the given circumstances, can Riyadh afford to take a lead in that direction and annoy Trump? Too big a question and with major consequences.

Published in Dawn, November 25th, 2018