Crude-oil futures tumbled Tuesday amid a brewing global crisis whose latest chapter includes a dramatic hike in Russia interest rates and a further slowdown in China’s manufacturing sector.
On the New York Mercantile Exchange, U.S. crude futures for delivery in January CLF5, -3.31% slid $1.74, or 3.1%, to $54.18 a barrel in the Globex electronic session, the lowest since May 2009. January Brent crude LCOF5, -3.16% on London’s ICE Futures exchange slumped $2.20, or 3.6%, to $58.86, at least a 5 1/2 year low.
Oil prices have now fallen at least 47% since their peak in June this year, their largest drop since the 2008-2009 financial crisis. The slump in oil prices is having a ripple effect across financial markets and economies, and market participants are still unsure of where prices will bottom.
China’s manufacturing sector showed a decline as HSBC’s China flash manufacturing purchasing managers’ index for December slid to a seven-month low of 49.5, compared with 50.0 in November.
“With China PMI lower than expected, we would need U.S. and E.U. manufacturing PMI to perform exceptionally well, or else [oil] prices would likely continue on its descent,” analyst Daniel Ang at Phillip Futures said.
Data showed a mixed batch of Geman PMI data, with multi-month lows for the services and composite PMIs, though the manufacturing PMI rose to two-month high. France’s manufacturing PMI fell to a four-month low.
Meanwhile, Russia’s central bank hiked its interest rates to 17% from 10.5% late Monday, unleashing an even more ferocious run on the ruble USDRUB, +11.24% which was last trading at 73 against the dollar. The yen strengthened against its rivals as unease over Russia and tumbling oil prices pushed investors into safe havens.
In the last three months, Brent crude has tumbled 40%, a level of adjustment that has only happened three times in the last 24 years, according to Morgan Stanley.
The Organization of the Petroleum Exporting Countries won’t call for an emergency meeting unless something drastic happens in the oil market, the United Arab Emirates’ oil minister, Suhail Al Mazrouei, said Monday.
He said the cartel won’t cut its production level for now as the move would only provide a temporary fix to the price drop. The refusal of OPEC and its core members to balance oil markets has caused much of the recent oil price slump, but the U.S. shale revolution has also contributed to the global oil surplus.
‘Fat’ leaving system, floor unknown: “As the industry takes the ‘fat’ out of the system that was built up over the past decade, the new equilibrium price is dropping sharply — where it settles is unknown right now,” Jeffrey Currie, head of commodities research at Goldman Sachs Group, said in a note.
He said data on the cost of producing oil will give a better idea of where oil prices will settle, “but in the meantime, volatility will likely remain high with risks skewed to the downside as the market searches for a new equilibrium.”
Morgan Stanley’s Adam Longson said an improvement in the demand-supply fundamentals for crude don’t matter for oil prices right now. Rather, factors such as price momentum and headlines will likely continue to drive oil prices until there is a change in the physical market.
While crude prices plunged, Nymex reformulated gasoline blendstock for January NGF15, -1.94% — the benchmark gasoline contract — rose 2 points, or 0.5%, to $1.5280 a gallon early Tuesday.
