Oil torn between economic slowdown concerns, OPEC-led supply cuts

CNBC

  • Oil prices were steady on Wednesday as signs of a global economic slowdown were countered by OPEC-led supply cuts which helped support Brent crude futures above $60 per barrel.
  • International Brent crude oil futures were at $60.66 per barrel at 0444 GMT, 2 cents above their last close.
  • U.S. West Texas Intermediate (WTI) crude futures were flat from their last settlement, at $52.11 a barrel.

Oil operations in the Permian Basin near Midland, Texas

Nick Oxford | Reuters
Oil operations in the Permian Basin near Midland, Texas

Oil prices were steady on Wednesday as signs of a global economic slowdown were countered by OPEC-led supply cuts which helped support Brent crude futures above $60 per barrel.

International Brent crude oil futures were at $60.66 per barrel at 0444 GMT, 2 cents above their last close.

U.S. West Texas Intermediate (WTI) crude futures were flat from their last settlement, at $52.11 a barrel.

“Fundamentals offer no clear price direction,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.

Prices were prevented from rising as signs of a global economic slowdown mounted.

China, Asia’s biggest economy, faces rising trade uncertainties this year, a commerce ministry official said on Wednesday, after the government earlier this week reported poor December trade data, with both exports and imports contracting from a year earlier.

In Japan, core machinery orders slowed sharply in November in a sign corporate capital expenditure could lose momentum as a bruising U.S.-China trade war spills into the global economy.

Adding to the trade woes, the U.S. economy is taking a larger-than-expected hit from a partial government shutdown, White House estimates showed on Tuesday, as contractors and even the Coast Guard go without pay and talks to end the impasse seem stalled.

The outlook for the global economy darkened further when British lawmakers on Tuesday overwhelmingly rejected Prime Minister Theresa May’s deal to leave the European Union.

OPEC cuts support crude

Despite this, oil markets are receiving support from supply cuts started late last year by producer group the Organization of the Petroleum Exporting Countries (OPEC) and major non-OPEC producer Russia.

However, surging U.S. crude oil production, which hit a record 11.7 million barrels per day (bpd) late last year, threatens to undermine the OPEC-led efforts.

U.S. crude oil output is expected to rise to a record of more than 12 million bpd this year and to climb to nearly 13 million bpd next year, the U.S. Energy Information Administration said on Tuesday, in its first 2020 forecast.

With so much uncertainty around demand and supply, the outlook for oil markets is unclear.

Oil prices are expected to oscillate close to current levels, according to a large annual survey of energy professionals conducted by Reuters between Jan. 8 and 11, with Brent prices in 2019 expected to average $65 per barrel, unchanged from surveys in 2016, 2017 and 2018.

“The oil market remains amply supplied and prices are set to trade rangebound,” Ruecker said. “Softening demand makes too-high prices short-lived … Similarly, (supply) cuts and slowing shale output make too-low prices short-lived.”

Brent crude prices fall below $60 on weak China trade data

CNBC

  • Brent crude oil prices fell below $60 per barrel on Monday after Chinese data showed weakening imports and exports in the world’s biggest trading nation.
  • China’s December exports fell by 4.4 percent from a year earlier, the biggest monthly drop in two years, official data showed on Monday, pointing to further weakening in the world’s second-largest economy. Imports also contracted, falling 7.6 percent, the biggest decline since July 2016.
  • Traders said the data pulled down crude oil futures and Asian stock markets alike, which had both posted modest gains earlier on Monday.

Brent crude oil prices fell below $60 per barrel on Monday after Chinese data showed weakening imports and exports in the world’s biggest trading nation.

International Brent crude oil futures were at $59.78 per barrel at 0312 GMT, down 70 cents, or 1.2 percent from their last close.

U.S. West Texas Intermediate (WTI) crude futures were down 63 cents, or 1.2 percent, $50.96 a barrel.

China’s December exports fell by 4.4 percent from a year earlier, the biggest monthly drop in two years, official data showed on Monday, pointing to further weakening in the world’s second-largest economy. Imports also contracted, falling 7.6 percent, the biggest decline since July 2016.

Traders said the data pulled down crude oil futures and Asian stock markets alike, which had both posted modest gains earlier on Monday.

Economic research firm TS Lombard said oil prices were capped as “the world economy is now slowing … limiting the scope for positive surprises in oil demand and hampering inventory reduction.”

Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, said “the deterioration seen recently in forward-looking economic data from the U.S. to Europe and China” meant that the upside for crude oil futures was likely limited to $64 per barrel for Brent and for $55 for WTI.

The weak Chinese data countered general support that oil markets have been receiving since the start of the year from supply cuts from the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC allies, including Russia.

In the United States, drillers cut four oil rigs in the week to Jan. 11, bringing the total count down to 873, energy services firm Baker Hughes said in a weekly report on Friday.

Oil drops nearly 2 percent, breaking 9-day win streak amid global growth concern

CNBC

  • Oil prices fall nearly 2 percent on Friday, but post solid weekly gains.
  • Investors remain concerned about a slew of recent economic data that has raised worries about a global economic slowdown.
  • Hopes the United States and China may soon resolve their trade dispute and tightened supply following OPEC-led crude production cuts are supporting oil prices.

Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Spencer Platt | Getty Images
Oil pumpjacks in the Permian Basin oil field are getting to work as crude oil prices gain.

Oil prices fell about 2 percent on Friday amid worries about a global economic slowdown, but futures ended the week higher, keeping some gains from a week-long rally spurred by U.S.-China trade hopes.

U.S. West Texas Intermediate crude futures ended Friday’s session down $1, or 1.9 percent, at $51.59 a barrel. Brent crude futures fell $1.15, or 1.9 percent, to $60.53 a barrel, around 2:30 p.m. ET.

Friday’s pullback marked the end of a nine-day winning streak for crude futures, the best string of gains since January 2010 for WTI and April 2007 for Brent.

Still, both benchmarks posted their second week of gains, with WTI rising about 7.5 percent and Brent up 6 percent.

Markets were supported earlier this week by hopes that an all-out trade war between Washington and Beijing might be averted. Three days of talks concluded on Wednesday with no concrete announcements, but higher-level discussions may convene later this month.

Paul Sankey on oil's rebound

Paul Sankey on oil’s rebound  

“Some of the strength that we’ve gotten from that seems to be coming out of the market,” Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.

“Right now I think the market is in a holding pattern above our recent lows and it’s looking for its next driver,” McGillian said.

Investors remained concerned about a slew of recent economic data that has raised worries about a global economic slowdown.

China plans to set a lower economic growth target of 6-6.5 percent in 2019 compared with last year’s target of “around” 6.5 percent, policy sources told Reuters, as Beijing gears up to cope with higher U.S. tariffs and weakening domestic demand.

“If we experience an economic slowdown, crude will underperform due to its correlation to growth,” said Hue Frame, portfolio manager at Frame Funds in Sydney.

On the supply side, oil markets have received support from supply cuts led by the Organization of the Petroleum Exporting Countries. The deal is aimed at reining in a glut that emerged in the second half of 2018.

Lower oil exports from Iran since November, when U.S. resumed sanctions against the OPEC producer, have also supported crude.

Pick energy names you know, says Stacey Gilbert

Pick energy names you know, says Stacey Gilbert  

Iran will see its crude exports severely curtailed for a third month in January, according to tanker data and industry sources.

Playing a key part in the emerging glut was the United States, where crude oil production has soared to a record 11.7 million barrels per day.

Consultancy JBC Energy this week said it was likely that U.S. crude production was “significantly above 12 million bpd” by this month.

U.S. energy firms, however, this week cut four oil rigs, the second week of declines, General Electric Co’s Baker Hughes energy services firm said, as producers turned conservative in their 2019 drilling plans due to uncertainty over a recovery in crude prices.

— CNBC’s Tom DiChristopher contributed to this report.

US crude rises 1.9%, settling at $47.96, as trade talks and supply cuts boost oil prices

CNBC

  • Oil prices rise after China said it would hold trade talks with the United States.
  • Crude futures extend gains as the stock market rallies on a strong U.S. jobs report and supportive comments from the Federal Reserve chair.
  • The Energy Information Administration reports U.S. crude stocks were little changed last week, but gasoline and distillate inventories rose sharply.

174362712AB024_OIL_BOOM_SHI

Andrew Burton | Getty Images

Oil prices rose on Friday after proposed trade talks between the United States and China eased some fears about a global economic slowdown, but gains were capped after the United States reported a sharp build in refined product inventories.

Brent crude, the global benchmark, rose $1.11, or 2 percent, to $57.06 a barrel. ET. U.S. crude oil ended Friday’s session up 87 cents, or 1.9 percent, at $47.96.

After both benchmarks fell sharply last year, prices were on track for solid gains in the first week of 2019, despite recent data that added to concerns about a slowing global economy.

Brent increased about 9 percent for the week, while WTI rose by nearly 6 percent.

Prices pared gains on Friday after data from the U.S. Energy Information Administration showed a sharp increase in product inventories as refiners ramped up utilization rates to 97.2 percent of capacity, the highest rate on record for this time of year.

We want to see crude oil above $50, says equity strategist

We want to see crude oil above $50, says equity strategist  

Gasoline stocks rose 6.9 million barrels last week, while distillate stockpiles grew 9.5 million barrels, the EIA said, compared with forecasts for builds under 2 million barrels. U.S. crude stockpiles were little changed.

“The big build in products has really caught everyone by surprise again,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “The gasoline number was a little bit disappointing because demand was soft and we saw a big build in supply.”

U.S. energy firms cut oil rigs for the first time in three weeks as producers started to reduce their 2019 drilling plans with the collapse in crude prices at the end of last year. Drillers cut eight oil rigs in the week to Jan. 4, bringing the total count down to 877, General Electric‘s Baker Hughes energy services firm said in its closely followed report on Friday.

Oil drew support from comments by China’s commerce ministry, which said Beijing would hold vice-ministerial trade talks with U.S. counterparts on Jan. 7-8. The news helped boost sentiment across riskier assets including the U.S. equity and oil markets.

Washington and Beijing have been locked in a trade war for much of the past year, disrupting the flow of hundreds of billions of dollars worth of goods and hampering growth.

China’s services sector extended its expansion in December, a private survey showed on Friday, bucking a trend of downbeat economic data.

Frost & Sullivan sees oil prices recovering in 2019

Frost & Sullivan sees oil prices recovering in 2019  

A survey from the Institute for Supply Management on Thursday showed U.S. factory activity slowed more than expected in December, and leading economies in Asia and Europe have reported a fall in manufacturing activity.

A robust U.S. jobs report also added to broader market optimism.

Despite some demand-side worries, oil has received support as supply cuts announced by the global coalition of producers known as OPEC+ kick in.

OPEC, Russia and other non-members agreed in December to reduce supply by 1.2 million barrels per day (bpd) in 2019. OPEC’s share of that cut is 800,000 bpd. A Reuters survey on Thursday found OPEC supply fell by 460,000 bpd in December.

The focus now will be on whether producers deliver further curbs in January to implement the deal fully. Iraq said on Friday it was committed to the deal and would keep its oil production at 4.513 million bpd for the first half of 2019.

Oil prices resume drop, shed most of last session’s gains

CNBC

  • Concerns over oversupply and the outlook for demand continue to weigh on oil prices.
  • U.S. crude inventories fell by 497,000 barrels in the week to Dec. 14, according to the U.S. Energy Information Administration, smaller than the decrease of 2.4 million barrels analysts had expected.
  • The decline in U.S. crude inventories was the third consecutive decrease.

Oil prices fell on Thursday to erase most of their gains from the day before, resuming declines seen earlier in the week amid worries about oversupply and the outlook for the global economy.

The front-month U.S. crude contract had dropped more than $1, or 2.24 percent, to $47.10 per barrel by 0423 GMT, offseting gains of 96 cents chalked up on Wednesday.

International benchmark Brent crude futures were down over $1, or 1.82 percent, at $56.20 per barrel, after climbing almost 2 percent the session before.

“Wednesday’s recovery was short-covering. Investors quickly moved their attention to deteriorating fundamentals in the oil markets including more signs of slowing economic growth next year, record production and the lack of confidence with OPEC’s pledge to curb production,” said Xi Jiarui, chief oil analyst at consultancy JLC.

The Organization of the Petroleum Exporting Countries and other oil producers including Russia agreed this month to curb output by 1.2 million barrels per day (bpd) in an attempt to drain tanks and boost prices.

Oil prices are down more than 30 percent from peaks seen in October.

But the cuts will not happen until next month and production has been at or near record highs in the United States, Russia and Saudi Arabia.

Saudi Arabia’s energy minister, Khalid al-Falih, said he expected global oil stocks to fall by the end of the first quarter, but added that the market remained vulnerable to political and economic factors as well as speculation.

Technical analysis showed U.S. oil may retest support at $45.94 per barrel, a break below which could cause a loss to $44.43, Reuters market analyst Wang Tao wrote on Thursday.

Squaring up

Volatility in crude prices this week has driven investors to shut their positions and is draining liquidity from the market, Xi said.

Total market open interest in U.S. crude contracts had fallen to 2.063 million contracts as of Thursday, up from a record of 2.71 million in May.

“It has been a tumultuous week in oil markets and traders may opt to shut it down after the last big risk event of the year with year-end position-squaring likely to kick-in today,” said Stephen Innes, head of trading for Asia-Pacific at OANDA.

Innes was referring to the U.S. Federal Reserve’s last policy meeting of 2018, at which it suggested the U.S. economy no longer needed the central bank’s support either through lower-than-normal interest rates or by maintaining a massive balance sheet.

But U.S. inventory data offered some support to WTI prices.

U.S. crude inventories fell by 497,000 barrels in the week to Dec. 14, the U.S. Energy Information Administration said on Wednesday, smaller than the decrease of 2.4 million barrels analysts had expected. The decline was the third consecutive decrease.

Distillate stockpiles, which include diesel and heating oil, fell by 4.2 million barrels, versus expectations of a 573,000-barrel increase, the EIA said.

Distillate demand rose to the highest since January 2003, which bolstered buying, particularly in heating oil futures, the market’s proxy for diesel.