Oil Retreats With Equities as Rally to Bull Market Seen Overdone

Oil extended its retreat as investor appetite for risk assets shrank and uncertainty persisted over how much OPEC will need to cut output to counter booming U.S. shale supplies.

Futures in New York lost as much as 2.3 percent, after falling for the first time in 10 sessions on Friday. Equities slipped on Monday after the S&P 500 Index closed flat Friday, before a slew of bank profit reports and company earnings. Worries that global growth may be slowing amid a U.S.-China trade war and a partial American government shutdown also weighed on investor sentiment.

In the oil market, Saudi Energy Minister Khalid Al-Falih said the OPEC+ coalition that’s cutting output to shrink a glut will do more if needed and that the curbs are a “lifeline” to U.S. shale drillers. Crude is down more than 30 percent from a four-year high in October even after a rally into a bull market earlier this month. While the boss of Italian producer Eni SpA and Oman’s oil minister see the latest rebound holding, doubts persist over demand.

“Several hurdles are casting a shadow on whether the current bout of price strength can be sustained,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd. in London. “Output from the oil cartel is still most likely to overshoot demand for its crude in the first half of this year. The demand side of the oil coin also gives reason to doubt the staying power of the current rally.”

West Texas Intermediate for February delivery declined as much as $1.16 to $50.43 a barrel on the New York Mercantile Exchange, and traded at $50.61 as of 10:33 a.m. London time. It lost 1.9 percent on Friday, snapping its longest rising streak in nine years. Prices still ended 7.6 percent higher last week.

Brent for March settlement fell $1.06 to $59.42 a barrel on the London-based ICE Futures Europe exchange, after gaining 6 percent last week. The global benchmark traded at a premium of $8.54 a barrel to WTI for the same month.

Earnings Jitters

“Crude is reversing direction with the decline in equity markets as there are pre-earnings season jitters,” said Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda Corp. “While the OPEC+ coalition has given more confidence that it will cut output in coming months, the market remains fragile and volatile while it waits for more news on U.S.-China trade tensions.”

Stock markets dropped in Europe and Asia on Monday while U.S. equity futures also declined. Some of the world’s biggest financial firms including Citigroup Inc. and Goldman Sachs Group Inc., and technology companies Taiwan Semiconductor Manufacturing Co. and Mindtree Ltd., are scheduled to report results this week.

Topping the list of investor concerns is the trade friction between the world’s top two economies, which threatens to bring about a demand-crimping global growth slowdown. China is seeking to resolve its spat with the U.S. this year, Commerce Minister Zhong Shan said in an interview after three days of talks. Chinese Vice Premier Liu He is set to visit Washington for further trade discussions later this month.

Meanwhile, the partial U.S. government shutdown, now in its fourth week, also continued to pull down market sentiment. A security checkpoint at Houston’s main airport closed as the impact of the shutdown broadened.

Other oil-market news: Drillers in America’s biggest shale gas play are opening the throttle, even after prices for the fuel tumbled from a four-year high reached in November. Hedge funds last week slashed bets on falling Brent crude prices to the lowest level since mid-November, as they looked to get out the way of a recovery that pushed oil back into a bull market. China, the world’s biggest importer of crude, received near-record volumes last month, capping yet another year of unprecedented purchases from overseas.