U.S. oil plunges over 3 per cent on strong dollar, supply glut

Hedge funds are betting OPEC won’t do anything next month to keep crude oil above $40 a barrel. According to Venezuelan government figures, the average price in 2015 for Venezuela’s mix of heavy and medium crude is now $46.31 for the year.

Today, Saudi Arabia issued a statement saying it wants to work with other oil producers to stem the decline in oil prices.

However, the slowdown in Chinese economy is forecast to continue in the long term, Evans-Pritchard said.

Elsewhere, crude oil for delivery in January on the NY Mercantile Exchange inched up 15 cents, or 0.35%, to trade at $42.05 a barrel after being down by as much as 3.5% earlier in the day.

Weaker global growth and inflation as well as the strength of the dollar will remain “huge” headwinds for dollar-based commodity prices, Bank of America said.

Crude oil tumbled in the morning session to trade at 41.09 giving up 81 cents while Brent oil gave up 26 cents to 44.17. There have also been a huge number of oil wells that have been captured by the Islamic state and used by them, which works against Iraq’s ability to capitalize on them.

“Oil prices and the [U.S. dollar] strength have an inverse relationship and if the [dollar] does strengthen more, oil prices should be taking a hit”, said Daniel Ang, analyst at Phillip Futures.

Benchmark Brent futures were up 54 cents, or 1.2 per cent. It rose more than $1 on the Saudi statement, then surrendered those gains before rebounding. To put that in context, oil inventories in Organization for Economic Co-operation and Development nations expanded by 314 million barrels or 12 percent in the corresponding period.

“A fall below $40 per barrel[for West Texas Intermediate] is very possible and real”, said Barnabas Chen, an OCBC commodities analyst who said traders are mostly in a cautious mode as they expect the global supply glut to worsen next year due to expanding oil stockpiles.

OPEC will meet on December 4 to review their output strategy. OPEC’s next meeting on production targets is on December 4.

The Saudis are joined by rich neighbors like Qatar, Kuwait and the United Arab Emirates.

Market participants also anxious about the discount in nearby WTI versus farther-dated contracts, analysts said. That’s because it wants to maintain, if not increase, its control of the oil market.

Tehran has repeatedly said it will increase its oil output by 500,000 bpd immediately after the sanctions are lifted and by another 500,000 bpd within the following six months.