Oil declines to two-week low as global stock rout deepens

Oil slid to a two-week low and headed for its longest losing streak in two months as a plunge in global equities dragged other markets lower.

Crude futures in New York fell a third day, sliding as much as 1.6 per cent. Stock indexes from Japan to Germany tumbled on Tuesday after a frantic sell-off in U.S. shares sent the Dow Jones Industrial Average to its biggest loss in 6 1/2 years. Nonetheless, oil market conditions look “solid” thanks to production cuts by OPEC, according to Vitol Group, the world’s largest independent energy trader.

Oil is being swept into the global sell-off at a time when concerns are emerging that a rally in crude is overdone. Speculation is also rising that U.S. shale production and stockpiles will undermine efforts by the Organization of Petroleum Exporting Countries and its allies to trim a global glut. The number of rigs drilling for crude in America jumped to the most in almost six months, and U.S. output breached 10 million barrels a day in November, the highest in more than 40 years.

“Oil prices could not escape the risk-off mood in financial markets,” said Norbert Ruecker, head of commodity research at Julius Bear Group Ltd. in Zurich.

West Texas Intermediate for March delivery dropped as much as $1.03 to US$63.12 a barrel on the New York Mercantile Exchange, the lowest since Jan. 19, and traded at $63.30 as of 1:34 p.m. in London. Prices are headed for a third straight decline, their longest losing streak since Nov. 29.

Brent for April settlement fell 67 cents, or one per cent, to US$66.95 on the London-based ICE Futures Europe exchange. It fell below its 50-day moving average, at $66.57, for the first time since July. The global benchmark crude traded at a premium of $3.90 to April WTI.

Energy-related stocks also took a hit as equity benchmarks across Asia and Europe spiraled. PetroChina slumped as much as 7.3 percent and Cnooc slid almost seven per cent at one point in Hong Kong. In Europe, Royal Dutch Shell Plc dropped by 2.7 percent and BP Plc fell by 1.1 per cent, even as the latter company reported the highest quarterly profit in almost three years.

In the U.S. on Monday, the two biggest oil companies — Exxon Mobil Corp. and Chevron Corp. — each plunged more than five per cent to be among the worst performers on the Dow Jones.

Concern that American oil may thwart a further rally in crude prices has also been weighing on investors’ minds. U.S. inventories probably grew three million bbls/d in the week through Feb. 2, according to a Bloomberg survey ahead of government data due Wednesday. Nationwide crude stockpiles in the previous week added 6.78 million barrels, the biggest gain in barrel terms in almost 11 months.

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