Crude oil futures extended falls from the previous session on Tuesday, with the Brent benchmark dropping 1 per cent as global financial markets headed south in the wake of Wall Street's biggest one-day decline since 2011.
Brent crude futures were at $66.95 per barrel at 0148 GMT, down 67 cents, or 1 per cent, from the previous close and more than $4 below their high point for 2018, hit last month. US West Texas Intermediate (WTI) crude futures were at $63.48 a barrel. That was down 67 cents, or 1 per cent, from their last settlement, and more than $3 off their 2018 high.
Financial markets went into a tailspin on Monday when US stocks plunged in highly volatile trading which saw the Dow Jones Industrial Average tumble by almost 1,600 points in intra-day trading as investors grappled with rising bond yields and potentially firming inflation. “Suddenly, inflation has become one of the most-talked about issues in markets,” US bank JP Morgan said in a note to clients. However, the correction in oil is more than a reaction to a sell-off in financial markets.
Despite efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia to withhold production since January last year in order to tighten the market and prop up prices, crude supplies remain relatively ample. That's largely due to soaring US oil production, which has jumped by almost 18 per cent since mid-2016 to 10 million barrels per day (bpd)—surpassing output by leading exporter Saudi Arabia. Only Russia produces more, averaging 10.98 million bpd in 2017.
What's more, there are indications that US oil production will rise further: the amount of rigs drilling for oil fields rose to 765 by late January, easily more than double the 316 that were in operation during 2016’s production lull. Consequently, hedge fund managers have cut their bullish exposure to petroleum for the first time in six weeks.