4 catalysts for the latest crash in oil prices

(Kristin Murphy / Getty Images)
  • Oil prices crashed again overnight, as futures markets for brent crude and US WTI both slumped by more than 6%.
  • Prices are now at a nine-month low, almost 30% beneath their October highs.
  • CBA commodities analyst Vivek Dhar highlighted four reasons for the overnight selloff.

Oil took another tumble overnight, as front-month Brent crude futures slumped more than 6% to around $US62.50 a barrel.

It marks a new nine-month low, and oil prices have now crashed by almost 30% from their October highs.

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US WTI futures were also hit hard, falling by 6.7% to $US53.36 a barrel. And based on the price action on the S&P500 overnight, it’s shaping up as a rough day for Australian energy stocks when the ASX200 opens at 10am AEDT.

CBA commodities analyst Vivek Dhar highlighted four catalysts behind the recent decline in his morning research note.

Firstly, he pinpointed where this all began — the Trump administration’s decision to grant a 180-day waiver for eight countries which allowed them to continue importing oil from Iran.

Previously, markets had been preparing for a blanket ban on Iran oil exports once the US sanctions kicked in at the start of November.

So around 1.5% of global oil supply that was “previously at risk of leaving the market” is still in circulation, Dhar said.

As a result, the “surprise decision” has left market participants scrambling to readjust their outlook.

Dhar added that last night’s falls were “accentuated with Russia’s reluctance to commit to production cuts ahead of a meeting with OPEC and allies on December 6″.

He said Russia would rather take a more patient approach to see how the market balances out, rather than cut production immediately.

In addition, there was increasing speculation overnight that US oil inventories are set to rise for the ninth straight week.

And lastly, Dhar said the “sell-off in global equities also contributed to lower oil prices”.

The ongoing declines in oil are expected to flow through to cheaper prices at the petrol pump for Australian motorists before the end of the month.

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