By Barani Krishnan
Investing.com - Oil is going down like a stone, falling its most in seven weeks, as the market wakes up to the hollow talk around the U.S.-China deal.
Prices of U.S. West Texas Intermediate and London’s Brent fell as much 3%, sliding for a second straight day as President Donald Trump warned his Chinese counterpart Xi Jinping that Beijing had better sign a phase one pact with Washington by Dec. 15 or face the wrath of more tariffs.
Adding to the weight on oil were indications that Russia was playing mind games again on whether it would support OPEC on production cuts, and analysts forecasts showing U.S. crude inventories possibly spiked for a fourth straight week last week.
Having a smaller but, nevertheless, significant impact was the perception that Aramco, the Saudi oil company headed for its first public share sale, was struggling to raise the money it wanted from chosen investors.
NYME-traded WTI plunged $1.79, or 3.1%, to settle at $55.35 per barrel. It was WTI’s sharpest one-day fall since Sept 30.
On Monday, the U.S. crude benchmark lost 1.2%, breaking from last week’s late-week rally which came on suggestions by U.S. Commerce Secretary Wilbur Ross and White House economic adviser Larry Kudlow that negotiators were closing in on the phase one.
ICE (NYSE:ICE) Futures-traded U.K. Brent tumbled $1.53, or 2.5%, to settle Tuesday at $60.91. It slumped 1.4% on Monday.
Falling crude prices pushed energy shares lower. The energy sector was the weakest of the 11 S&P 500 sectors for a second straight day.
The “market has lost its strength and is retracing after attempting a breakout above the 200-day moving average,” Scott Shelton, energy futures broker at ICAP in Durham, N.C.
On Monday, CNBC quoted a Chinese government source as saying there was gloom in Beijing about prospects for a trade deal.
The long-running dispute has hit economic growth prospects and clouded the outlook on oil demand.
Russia is unlikely to agree to deeper cuts in oil output at a meeting with fellow exporters next month, but could commit to extend existing curbs to support Saudi Arabia, Reuters reported, quoting three sources on Tuesday.
Russia is a key price-support ally in the OPEC+ group that groups Moscow with the 14-member Organization of the Petroleum Exporting Countries.
Oil bulls, however, scoffed at the Russia story.
“Almost every time we get that headline, Russia goes to the OPEC meeting and is onboard with cuts,” said Danny Flynn, a commodities broker at Price Futures Group in Chicago. “That means we have the selloff that turns out to be a golden buy.”
Aramco’s pre-listing woes also weighed after reports that Saudi Arabia had canceled the London leg of its initial public offering roadshow, scheduled for Wednesday.
While Aramco will be floated on the domestic Saudi bourse, it is trying to get some foreign participation as well in its IPO.
“In fact, most of the money in the IPO has been invested by some of the same Saudi princes that got an all-expense-paid vacation at the Saudi Ritz Carlton that shared the same motto as the Hotel California — you could check out anytime you want but you could never leave,” said Phil Flynn, energy analyst at Price Futures Group.
He was referring to Riyadh’s 2017 detention of many of its top businessmen at the Saudi Ritz Carlton on tax evasion accusations, releasing them only after the payment of huge settlements.
“For foreign investors, it is clear that it is hard to see top dollar valuation when the bulk of your investors had to be strong-armed to invest in the deal in the first place,” Flynn said.