Turkey’s market rout, increased output from the OPEC as well as a surprise increase in US crude stockpiles have added to worries that supplies may outstrip demand.
Oil headed for the longest run of weekly declines in three years, dragged down by everything from an emerging-market rout to rising global supplies and lingering concerns over a spat between the world’s biggest economies, Bloomberg reports.
Futures in New York were headed for a 3.3% drop this week, their seventh straight decline. Turmoil in Turkey this month has reverberated across financial markets in developing economies, US crude inventories expanded by the most since 2017, OPEC raised output in July while the outlook for a Chinese-American trade standoff is still uncertain.
The bearish sentiment has brought prices down to about $65 a barrel, near the lowest level since early June. While the standoff between China and the US could ease after they showed a willingness to resume negotiations, an earlier breakdown in talks have left investors skeptical about the outcome.
Adding to macro-economic concerns is the risk of contagion from Turkey’s market rout, which seeped into the world of oil as investors grew anxious over a potential slide in global energy consumption from falling economic growth. Meanwhile, increased output from the Organization of Petroleum Exporting Countries as well as a surprise increase in US crude stockpiles have added to worries that supplies may outstrip demand.
“If the Turkish crisis worsens further, it will stoke concerns over the negative impact on the global economy, which already faces a US-China trade war,” Satoru Yoshida, a commodity analyst at Rakuten Securities Inc. in Tokyo, said by phone. “Prices will also be negatively impacted if US crude inventories continue to rise in the coming weeks as stockpiles tend to drop in August.”
West Texas Intermediate crude for September delivery traded at $65.40 a barrel on the New York Mercantile Exchange, down 6 cents, at 3:46 p.m. in Tokyo. Total volume traded was about 51% below the 100-day average. Prices are down about 12% over the last seven weeks and are headed for the longest stretch of weekly losses since August 2015.
Brent for October was at $71.36 a barrel on the London-based ICE Futures Europe exchange, down 7 cents. Prices have fallen about 2% this week. The global benchmark crude traded at a $6.54 premium to WTI for the same month.
Futures for December delivery were little changed near 500 yuan a barrel on the Shanghai International Energy Exchange. The contract is set to drop 1.8% this week.
Broader risk assets also took a beating this week, with Asian equities to emerging market currencies and commodities sliding lower after the Turkish lira’s plunge sent shockwaves through markets. The US escalated a diplomatic row over the release of an American pastor, tipping Turkey’s economy deeper into crisis and raising fears that the tumult will spread to other economies.
Meanwhile, America’s trade spat with China, which has been weighing on the market for the past few months, continued to leave investors skittish. This week’s announcement that the countries will hold talks in Washington in late August is spurring some optimism. Still, US President Donald Trump is also pushing the Asian nation to offer more and said he won’t do “any deal until we get one one that’s fair to our country.”
As well as political concerns, oil market fundamentals have also dragged on prices. Nationwide stockpiles in the US rose by 6.81 million barrels last week, despite expectations for a decline, while inventories at the key storage hub of Cushing in Oklahoma expanded for the first time since May. Also OPEC raised production in July, with Libya now producing more than 1 million barrels a day as it ramps up its production after a conflict in the nation led to disruptions.