Oil falls on economic slowdown, but OPEC output cuts offer some support

CNBC

  • Both international Brent and U.S. crude futures declined.
  • Weighing on financial markets, including crude oil futures, were concerns that trade disputes between the United States and China would remain unresolved, denting global economic growth prospects.
  • On Thursday, the European Commission sharply cut its forecasts for euro zone economic growth as it expects global trade tension and an array of domestic challenges.

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 markets fell on Friday, pulled down by an economic slowdown, although supply cuts led by producer club OPEC and U.S. sanctions against Venezuela provided crude with some support.

U.S. West Texas Intermediate (WTI) crude futures stood at $52.20 per barrel by 0351 GMT, down 44 cents, or 0.8 percent, from their last settlement. WTI dropped by around 2.5 percent the previous session.

International Brent crude oil futures were down by 44 cents, or 0.7 percent, at $61.19 per barrel, after falling 1.7 percent the previous session.

Weighing on financial markets, including crude oil futures, were concerns that trade disputes between the United States and China would remain unresolved, denting global economic growth prospects.

U.S. President Donald Trump said on Thursday he did not plan to meet with Chinese President Xi Jinping before a March 1 deadline set by the two countries to strike a trade deal.

If there is no agreement between the world’s two biggest economies, Trump has threatened to increase U.S. tariffs on Chinese imports. Another round of talks is scheduled for next week in Beijing.

“Crude prices returned to the lows of the week as slower growth prospects…could signal a return (of reasons) for inventories to rise,” said Edward Moya, market analyst at futures brokerage Oanda.

On Thursday, the European Commission sharply cut its forecasts for euro zone economic growth as it expects global trade tension and an array of domestic challenges.

The Commission said growth this year would slow to 1.3 percent from 1.9 percent in 2018, before rebounding in 2020 to 1.6 percent.

Despite this, traders said crude prices were prevented from falling much further by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC), adopted late last year with the aim of tightening the market and propping up prices.

As part of the cuts, Saudi Arabia – the world’s biggest crude exporter – cut its output in January by about 400,000 barrels per day (bpd) to 10.24 million bpd, according to OPEC sources.

That puts Saudi crude oil production almost 1.7 million bpd below that of the United States, which has been churning out around 11.9 million bpd in late 2018 and early 2019 – up by more than 2 million bpd from a year earlier.

Another risk to supply comes from Venezuela after the implementation of U.S. sanctions against the OPEC member’s petroleum industry in late January. Analysts expect this move to knock out 300,000-500,000 bpd of exports.

Yet for the time being, the sanctions impact on international oil markets was limited.

“The (Venezuela) disruption overall seems manageable both for the U.S. and the global market,” said Norbert Rücker, head of commodity research at Swiss bank Julius Baer. “The oil market sits on a comfortable cushion of supply.”

Oil opens 2019 with losses on surging supply, signs of economic slowdown

CNBC

  • International Brent crude futures for March were at $53.27 per barrel at 0421 GMT
  • West Texas Intermediate (WTI) futures were at $45.01 per barrel.

A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Getty Images
A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.

Oil markets dropped by around 1 percent in 2019’s first trading on Wednesday, pulled down by surging U.S. output and concerns about an economic slowdown in 2019 as factory activity in China, the world’s biggest oil importer, contracted.

International Brent crude futures for March were at $53.27 per barrel at 0421 GMT, down 53 cents, or 1 percent, from their final close of 2018.

West Texas Intermediate (WTI) futures were at $45.01 per barrel, down 40 cents, or 0.9 percent.

In physical oil markets, Dubai crude averaged $57.318 a barrel for December, the lowest since October 2017, two traders who participate in the market said on Wednesday.

Similarly, Malaysia’s Petronas set the official selling price of a basket of December-loading Malaysian crude grades at $62.79 a barrel, the lowest since October 2017, the state oil firm said on Wednesday.

Traders said futures prices fell on expectations of oversupply amid surging U.S. production and concerns about a global economic slowdown.

“We are most likely past the peak of this long economic uptrend,” consultancy JBC Energy said in an analysis of 2018.

Factory activity weakened in December across Asia, including in China, as the Sino-U.S. trade war and a slowdown in Chinese demand hit production in most economies, pointing to a rocky start for the world’s top economic growth region in 2019.

Oil prices ended 2018 lower for the first time since 2015, after a desultory fourth quarter that saw buyers flee the market over growing worries about too much supply and mixed signals related to renewed U.S. sanctions on Iran.

“Oil prices … registered their first yearly decline in three years on fears of a slowing global economy and concerns of an ongoing supply glut,” said Adeel Minhas, a consultant at Australia’s Rivkin Securities.

For the year, WTI futures slumped nearly 25 percent, while Brent tumbled nearly 20 percent.

The outlook for 2019 is riddled with uncertainty, analysts said, including the U.S.-China trade concerns and Brexit, as well as political instability and conflict in the Middle East.

A Reuters poll showed oil prices are expected to trade below $70 per barrel in 2019 as surplus production, much of it from the United States, and slowing economic growth undermine efforts led by the Organisation of the Petroleum Exporting Countries (OPEC) to cut supply and prop up prices.

On the production side, all eyes will be on the ongoing surge in U.S. output and on OPEC’s and Russia’s supply discipline.

“Don’t underestimate shale producers and the wider U.S. oil industry in general. Too often this year the market pushed stories … bottlenecks(pipelines, frack crews, truck drivers, etc.), yet U.S. oil production will have grown by a massive 2+ million barrels per day between 1.1.2018 and 1.1.2019,” JBC Energy said.

U.S. crude output rose to an all-time high of 11.537 million barrels per day (bpd) in October, the Energy Information Administration (EIA) said on Monday. That makes the U.S. the world’s biggest oil producer ahead of Russia and Saudi Arabia.

Weekly data, which is more open to revisions, was reported last week at 11.7 million bpd in late December by the EIA.

Oil prices fall into bear market on rising supply, economic concerns

CNBC

  • Both Brent and WTI have declined by around 20 percent since seeing four-year highs in early October.
  • One Reuters analyst said Brent could “slip further into a range of $68.59-$69.69 per barrel.”

Oil markets on Friday remained weak as rising supply and concerns of an economic slowdown pressured prices, with U.S. crude now down by around 20 percent since early October.

U.S. West Texas Intermediate (WTI) crude oil futures were at $65.60 per barrel at 0509 GMT, down 4 cents, or 0.1 percent from their last settlement. WTI is set to fall for a fifth week, down 4.1 percent so far this week.

Front-month Brent crude oil futures were at $70.69 a barrel, 4 cents above their last close. Brent is set for a 2.9 percent drop for the week, its fifth straight week of declines.

Both Brent and WTI have declined by around 20 percent from the four-year highs they reached in early October.

“Oil prices continue to decline and are now officially in a bear market, having declined 20 percent from their (October) peak,” said William O’Loughlin, investment analyst at Australia’s Rivkin Securities.

Reuters technical commodity analyst Wang Tao said on Friday that “Brent oil may slide further into a range of $68.59-$69.69 per barrel.”

That would be the first time Brent has fallen below $70 since April.

Analysts said the main downward price pressure came from rising supply, despite the U.S. sanctions against Iran that were imposed this week, as well as concerns over an economic slowdown.

“As OPEC exports continue to rise, inventories continue to build which is putting downward pressure on oil prices,” analysts at Bernstein Energy said.

“A slowdown in the global economy remains the key downside risk to oil,” Bernstein added.

The decline in prices over the past weeks follows a rally between August and October when crude rose ahead of the re-introduction of sanctions against Iran’s oil exports on Nov. 5.

The sanctions, however, are unlikely to cut as much oil out of the market as initially expected as Washington has granted exemptions to Iran’s biggest buyers which will allow them to continue buying limited amounts of crude for at least another six months.

China National Petroleum Corp (CNPC) said on Friday it was continuing to take oil from Iranian oilfields in which it has ownership stakes.

“Our main cooperation with Iran is upstream investment. Lifting equity oil is recouping our investment there,” Hou Qijun, deputy general manager for CNPC, said on the sidelines of an industry event in Shanghai.

Bernstein Energy expects “Iranian exports will average 1.4-1.5 million barrels per day (bpd)” during the exemption period,” down from a peak of almost 3 million bpd in mid-2018.

Oil falls as investors wary of trade slowdown

CNBC

  • Oil markets remain tense ahead of impending U.S. sanctions against Iran’s crude exports, which are set to start next week.

Oil prices dipped on Monday amid cautious sentiment as a plunge in financial markets last week and dollar strength early this week underscored concerns that growth may be slowing, especially in Asia’s emerging economies.

Front-month Brent crude oil futures were trading down 39 cents, or 0.5 percent, at $77.23 a barrel at 0616 GMT.

U.S. West Texas Intermediate (WTI) crude futures were at $67.31 a barrel, down 28 cents, or 0.4 percent, from their last settlement.

Investors remained wary after hefty losses last week, while a stronger dollar on safe-haven buying puts pressure on the purchasing power of emerging markets.

“Cooling economic conditions and symptoms of softer international trade have exacerbated bearish conditions as (the) growth outlook dims,” said Benjamin Lu of brokerage Phillip Futures in Singapore.

Singapore-based ship tanker brokerage Eastport said stock prices were falling amid policy uncertainty, rising interest rates and disappointing earnings from some companies.

Financial market turmoil may “weigh on investment and consumer spending, reducing trade flows and ultimately hitting demand,” it said.

Hedge funds slashed their bullish wagers on U.S. crude in the latest week to the lowest level in more than a year, the U.S. Commodity Futures Trading Commission said on Friday.

The speculator group cut its combined futures and options position in New York and London by 42,644 contracts to 216,733 in the week to Oct. 23, the lowest level since September 2017.

There were also signs of a slowdown in global trade, with rates for dry-bulk and container ships – which carry most raw materials and manufactured goods – coming under pressure.

On the supply side, however, oil markets remain tense ahead of looming U.S. sanctions against Iran’s crude exports, which are set to start next week and are expected to tighten supply, especially to Asia which takes most of Iran’s shipments.

The tight market in Asia is visible in the low amount of unsold crude oil stored on tankers on waters around Singapore and southern Malaysia, the region’s main oil trading and storage hub.

Just four stationary supertankers are currently filled with crude oil, according to Refinitiv Eikon ship tracking data.

That’s down from around 15 a year ago, and from 40 in mid-2016 during the peak of the supply glut.

In North America, however, there is no oil shortage as U.S. crude oil production has increased by almost a third since mid-2016 to around 11 million barrels per day.

Production is set to rise further. U.S. drillers added two oil rigs in the week to Oct. 26, bringing the total count to 875, the highest level since March 2015, Baker Hughes energy services firm said on Friday.

More than half of all U.S. oil rigs are in the Permian basin in West Texas and eastern New Mexico, the country’s biggest shale oil formation.

Oil firm near 4-year high as Washington’s Iran sanctions loom

CNBC

  • Washington’s Iran oil export sanctions to start Nov. 4.
  • OPEC seen to have little spare capacity to fill Iran loss.
  • High oil price to weigh on growth — HSBC.

Oil markets were firm on Tuesday, with Brent crude prices holding near four-year highs reached the previous day as markets adjust to the prospect of tighter supply once the U.S. sanctions against Iran kick in next month.

International benchmark Brent crude oil futures were at $85.02 per barrel at 0255 GMT, up 4 cents from their last close, and not far off the $85.45 peak reached in the previous session, the highest since November 2014.

Brent has risen by around 20 percent from the most recent lows in August.

U.S. West Texas Intermediate (WTI) crude futures were up 24 cents, or 0.3 percent, at $75.54 a barrel.

WTI is up by about 17 percent since mid-August.

Sentiment was lifted by a last-gasp deal to salvage NAFTA as a trilateral pact between the United States, Mexico and Canada, rescuing a $1.2 trillion a year open-trade zone that had been about to collapse.

More fundamentally, oil markets have been pushed up by looming U.S. sanctions against Iran’s oil industry, which at its most recent peak this year supplied almost 3 percent of the world’s almost 100 million barrels of daily consumption.

Trade data in Refinitiv Eikon showed Iran’s seaborne exports in September were just 1.9 million barrels per day, the lowest level since mid-2016.

“Oil prices continue to climb, supported by the nearing Iran embargo and related supply concerns,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.

“The supply situation looks fragile indeed, as any additional shortfall such as a deterioration of the situation in Venezuela would tighten oil supplies.”

HSBC said in its fourth quarter Global Economics outlook that “our oil analysts believe there is now a growing risk it (crude) could touch $100 per barrel.”

Washington’s sanctions are set to start on Nov. 4, and analysts say there may not be enough spare production capacity in the short-term to meet demand, potentially requiring large storage drawdowns.

“The camp of believers that $100 oil could be reached continues to expand, with spare capacity concerns continuing to grow,” said Brian Kessens, managing director at investment services firm Tortoise.

The Organization of the Petroleum Exporting Countries (OPEC), of which Iran is a member, has struggled to replace export falls from Iran, according to a Reuters survey published on Monday.

With crude prices soaring and many currencies in emerging markets, including India’s rupee and Indonesia’s rupiah declining, analysts warn that economic growth may be eroded.

“U.S. (fiscal) tightening, higher oil prices and ongoing trade frictions are all taking their taking their toll on the growth outlook,” HSBC said.