Brent crude oil dropped below $44 a barrel on Monday to hit its lowest level for three months, as a strengthening US dollar and doubts over Opec’s ability to agree supply curbs when it meets this month led to funds selling out of the market.
Hedge funds and other large speculators have been paring their bets on higher oil prices for the past month, with the latest exchange data showing a record drop in Brent equivalent to almost 80m barrels in the week to November 8.
A strong dollar on Monday also weighed across commodities, with the dollar index jumping above 100 for the first time this year as investors bet US president-elect Donald Trump’s plans for economic stimulus and protectionism could stoke growth and inflation.
Mr Trump’s vow to support the US oil industry, potentially by cutting regulation and opening up federal lands for drilling, have also raised questions about the outlook for supplies, with the market still weighed down by a two-year old glut.
David Hufton of PVM oil brokerage in London said the election of Mr Trump may give Opec members pause when they meet on November 30 to try and hammer out the details for the first supply cut agreement since the financial crisis.
“With yet more variables to consider and additional uncertainty, Opec ministers will require more time as their masters try to work out the strategic implications of a Trump Presidency,” said Mr Hufton. “Even without the Trump victory there was no sign of any progress towards an Opec production accord last week.”
Brent, the international marker, has fallen 19 per cent since early October, when it hit a year high of $53.73 a barrel shortly after Opec members had first pledged to pursue supply curbs. It dropped 2.6 per cent to a low of $43.57 on Monday, with US benchmark West Texas Intermediate down 2.6 per cent to $42.22 a barrel.
Since October doubts about the likelihood of an Opec agreement have intensified with members such as Iraq questioning the production figures underpinning the cuts, while Libya and Nigeria’s output have recover from a string of outages.
Opec said last week that its output had reached an all-time high of 33.64m barrels a day — well above the planned target of 32.5m-33m it agreed to work towards at a meeting in Algiers in late September.
In the immediate aftermath of that deal, hedge funds had accumulated a combined net position across Brent and US benchmark West Texas Intermediate that was the biggest on record, equal to more than 650m barrels of crude, or a week’s worth of global demand.
But since then the combined total has fallen more than 150m barrels, with the biggest single drop coming in Brent last week.
Saudi Arabia’s oil minister Khalid al-Falih has said it is “imperative” for Opec to reach a deal, but it remains to be seen if Riyadh and its Gulf Arab allies will be prepared to shoulder the bulk of cuts, with their regional rival Iran still working to raise production as it returns from sanctions after last year’s nuclear agreement.
The election of Mr Trump could, however, slow Iran’s exports if he attempts to follow through on his promise to tear up the deal, analysts said.
“We can say for certain that if oil prices in 2017 were difficult to predict before November 8, they are even more difficult to predict now,” said Mr Hufton.
Other commodities were also under pressure from the stronger US dollar, which makes raw materials priced in the US currency more expensive.
Copper prices rose above $6,000 a tonne on Friday for the first time since June 2015, before dipping back to $5,557 on Monday.
Trading in the red metal has surged with volumes in copper on the London Metal Exchange rising to their highest levels since January 2015 last week, driven by a flow of speculative Chinese money betting that Mr Trump’s infrastructure plan will boost metals demand.
Additional reporting by Henry Sanderson