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October 26, 2018

Oil prices drop as Saudi Arabia warns of oversupply amid markets slump

Oil prices have dropped and are moving towards a loss for the third week, as Saudi Arabia warned of excess supply amid a slump in stock markets.

Oil prices have dropped and are moving towards a loss for the third week, as Saudi Arabia warned of excess supply amid a slump in stock markets.

Brent crude futures LCOc1 dropped 49 cents to $76.40 a barrel by 6:49 am GMT, while US crude CLc1 decreased by 59 cents to $66.74, reported Reuters.

This week, the US benchmark is set for a loss of 3.5%.

In a note, Fitch Solutions stated: “The near $10 per barrel drop in Brent crude seen over October is a spillover from the global sell-off in equities.”

The slump in stock prices this week has pulled down oil markets. Wall Street has experienced its largest daily decline since 2011.

Energy companies with Australian energy index have been affected too. This week, AXEJ dropped 10%, which is considered to be the biggest decline in three years.

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“The near $10 per barrel drop in Brent crude seen over October is a spillover from the global sell-off in equities.”

Global financial markets have been affected by several issues, including the trade war between China and the US, increasing borrowing costs and bond yields, as well as a budget crisis in Italy.

Container and bulk freight rates are falling after they increased for most of this year. This trend indicates a slowdown in global trade.

US investment bank Jefferies stated: “The Brent curve is flirting with contango, a troubling development that we expect is at least in part driven by managed money liquidation in a broader risk-off trade.”

Yesterday, Saudi Arabia’s OPEC Governor Adeeb Al-Aama said that oil markets are likely to experience supply glut by the end of this year.

Al-Aama told Reuters: “The market in the fourth quarter could be shifting toward an oversupply situation as evidenced by rising inventories over the past few weeks.”

Oil markets currently remain tight due to looming US sanctions against Iran’s oil exports. The sanctions will commence on 4 November.

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