Oil dips on expectations of rising output, China factory and services stutter

CNBC

Reuters

KEY POINTS
  • Brent crude futures were at $71.75 per barrel at 0131 GMT, down 29 cents, or 0.4 percent, from their last close.
  • U.S. West Texas Intermediate (WTI) crude futures were at $63.35 per barrel, down 15 cents, or 0.2 percent from their previous settlement.
Reusable CNBC: Oil derrick pump jack Midland Texas west Texas 150825-001
Justin Solomon | CNBC

Oil prices dipped on Tuesday on expectations rising output from the United States and producer club OPEC would offset most of the shortfall expected from U.S. sanctions on Iran, but analysts said markets remained tight.

A stutter in China’s factory and servicing industries in April also weighed on crude prices, traders said, as it suggested Asia’s biggest economy is still struggling to regain traction.

Brent crude futures were at $71.75 per barrel at 0131 GMT, down 29 cents, or 0.4 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $63.35 per barrel, down 15 cents, or 0.2 percent from their previous settlement.

Oil prices surged by around 40 percent between January and April, lifted by supply cuts led by the Middle East-dominated producer club of the Organization of the Petroleum Exporting Countries (OPEC) as well as by U.S. sanctions on producers Iran and Venezuela.

But prices came under downward pressure late last week after U.S. President Donald Trump openly pressured OPEC and its de-facto leader Saudi Arabia to raise output to meet the supply shortfall caused by the tightening Iran sanctions.

Stephen Innes, head of trading at SPI Asset Management, said the producer group “will want to avoid at all cost oil prices surging to levels that will trigger demand devastation, (while) it is clearly in OPEC’s best interest to maintain a solid floor on prices.”

Bank of America Merrill Lynch said “Iranian oil production will fall to 1.9 million barrels per day in 2H19 from 3.6 million barrels per day in 3Q18 as U.S. sanctions kick in and waivers eventually expire.”

Despite this, the bank said it expected “a nearly balanced market in 2019” as output from OPEC and also the United States will rise.

French bank BNP Paribas said it expected oil prices “to rise in the near-term” as crude producers were “over-tightening the market in the face of unplanned supply outages and resilient oil demand”.

The bank said it expected crude markets to climb until the third quarter of 2019, adding that prices would then “start to become vulnerable to a sharp rise in U.S. exports of light crude thanks to pipeline and terminal capacity expansion.”

U.S. exports exceeded 3 million barrels per day (bpd) for the first time in early 2019 amid a more than 2 million bpd production surge over the past year, to a record of more than 12 million bpd.

BNP Paribas said it saw WTI averaging $63 per barrel in 2019, up $2 from its previous forecast, while Brent will average $71 per barrel, up $3 from an earlier estimate.

“In 2020, we see WTI averaging $64 per barrel and Brent $68 per barrel,” the bank said.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s