Oil prices pressured by economic slowdown, but Saudi commitment to supply cuts supports

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KEY POINTS
  • Front-month Brent crude futures were at $61.06 at 0200 GMT. That was 22 cents, or 0.4%, below last session’s close.
  • U.S. West Texas Intermediate (WTI) crude futures were at $53.08 per barrel, down 17 cents, or 0.3%, from their last settlement.
Reusable: Oil storage refinery Australia Caltex Oil 141014
Jason Reed | Reuters

Oil prices were pressured on Tuesday by an economic slowdown that has started to impact fuel consumption, although some support came from a Saudi Arabian statement that consensus was emerging with other producers over extending supply cuts.

Front-month Brent crude futures were at $61.06 at 0200 GMT. That was 22 cents, or 0.4%, below last session’s close.

U.S. West Texas Intermediate (WTI) crude futures were at $53.08 per barrel, down 17 cents, or 0.3%, from their last settlement.

Oil futures are around 20% below 2019 peaks reached in late April, with falls in May the sharpest monthly declines since November.

That has come as financial traders sell out of oil futures amid growing concerns about the outlook for the world economy and oil consumption.

Saudi Energy Minister Khalid al-Falih said on Monday that a consensus was emerging among producers to continue working “to sustain market stability” in the second-half of the year.

The Middle East dominated producer club of the Organization of the Petroleum Exporting Countries (OPEC), together with some allies including Russia, has been withholding supply since the start of the year to prop up the market.

The group plans to decide later this month or in early July whether to continue withholding supply.

Meanwhile, U.S. oil output has been soaring, making the country the world’s biggest crude producer, at 12.3 million barrels per day (bpd) at the end of May, versus 11.11 million bpd produced in Russia and 9.65 million bpd pumped out of the ground in Saudi Arabia.

With U.S. production surging, more of its oil is being exported, with a record of six super-tankers scheduled for loading at the Louisiana Offshore Oil Port (LOOP) between late May and early June.

Economic worries

Ole Hansen, head of commodity strategy at Saxo Bank, said “the tight supply focus (is) switching to increased risk of lower growth and demand,” and that “an escalation of the U.S.China trade war has added further downside risks to already slowing economies. ”

South Korea’s economy shrank by 0.4% in the first quarter while core inflation slowed to a near 20-year low in May, data showed on Tuesday, pointing to a further economic slowdown in Asia.

“Slowing economic activity now threatens to derail our base case of robust cyclical (oil) demand growth,” Bank of America Merrill Lynch said in a note.

Oil prices slide as trade wars roil financial markets

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Reuters

KEY POINTS
  • Front-month Brent crude futures were at $61.16 at 0109 GMT. That was 83 cents, or 1.3%, below Friday’s close.
  • U.S. West Texas Intermediate (WTI) crude futures were at $52.88 per barrel, down 62 cents, or 1.2% from its last settlement.
Reusable: Oil pump 150921
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Oil prices fell more than 1% on Monday, extending losses of over 3% from Friday, when crude markets racked up their biggest monthly losses in six months amid stalling demand and as trade wars fanned fears of a global economic slowdown.

Front-month Brent crude futures were at $61.16 at 0109 GMT. That was 83 cents, or 1.3%, below Friday’s close.

U.S. West Texas Intermediate (WTI) crude futures were at $52.88 per barrel, down 62 cents, or 1.2% from its last settlement.

The drops followed price slumps of more than 3% on Friday, which made May the worst-performing month for crude futures since last November.

“Oil prices slid on fresh trade worries after U.S. President Donald Trumpstoked global trade tensions by threatening tariffs on Mexico, which is one of the largest U.S. trade partners and a major supplier of crude oil, ” said Mithun Fernando, investment analyst at Australia’s Rivkin Securities, in a note on Monday.

Edward Moya, senior market analyst at futures brokerage OANDA in New York, said last month’s crude oil price fall of more than 10% was “the worst May performance in seven years as the escalation of the global trade war saw the global growth outlook crumble.”

Moya warned “geopolitical risks remain in place” and added that “oil remains vulnerable” because of a weakening demand outlook for crude.

“The U.S.-China feud remains most critical to the global growth outlook, but the addition of trade tensions between the U.S. and Mexico raised the slower demand picture for the Americas, ” he said.

Barclays bank said in a note published last Friday that U.S. March oil consumption “declined significantly year-on-year for the first time since September 2017 …(as) petroleum demand fell almost 370,000 barrels per day (bpd) year-on-year on weak consumption across the barrel.”

Rising US supply

U.S. bank Goldman Sachs said in a note published on Sunday that “escalating trade wars and weaker activity indicators have finally caught up with oil market sentiment”.

Brent crude oil prices have dropped almost 20% from their 2018-peak in late April.

“The magnitude and velocity of the move lower were further exacerbated by growing concerns over strong U.S. production growth and rising inventories,” Goldman said.

U.S. energy firms this week increased the number of oil rigs operating for the first time in four weeks, and weekly production last stood at a record 12.3 million barrels per day (bpd).

That’s pushed up commercial U.S. crude oil inventories, which have increased by 8.4% since the start of the year to 476.5 million barrels.

“With an increasingly uncertain macro outlook as well as rising U.S. production and large available core-OPEC spare capacity helping offset declining supply from Iran and Venezuela, we instead expect prices will likely remain around our 3Q forecasts and current levels, albeit with still high price volatility, ” Goldman said.

The bank’s Brent price forecast for the third quarter of this year was $65.50 per barrel.

Oil set for biggest monthly fall since November as trade conflicts spread

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Reuters

KEY POINTS
  • Front-month Brent crude futures, the international benchmark for oil prices, were at $66.28 at 0311 GMT, down by 59 cents, or 0.9%, from last session’s close.
  • U.S. West Texas Intermediate (WTI) crude futures were at $56.08 per barrel, down 51 cents, or 0.9%, from their last settlement. WTI earlier marked its lowest since March 8 at $55.66 a barrel.
Reusable: Oil pump jack leased by Devon Energy 150922
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.
Nick Oxford | Reuters

Oil prices fell on Friday and were on track for their biggest monthly fall since November as trade conflicts spread and U.S. crude output returned to record levels.

Front-month Brent crude futures, the international benchmark for oil prices, were at $66.28 at 0311 GMT, down by 59 cents, or 0.9%, from last session’s close.

U.S. West Texas Intermediate (WTI) crude futures were at $56.08 per barrel, down 51 cents, or 0.9%, from their last settlement. WTI earlier marked its lowest since March 8 at $55.66 a barrel.

The drops mean that crude oil futures are on track for their biggest monthly loss since last November.

U.S. President Donald Trump ramped up trade tensions globally by vowing to slap tariffs on all goods from Mexico, firing up fears over economic growth and appetite for oil.

The Mexico trade dispute adds to a trade war between the United States and China, which many analysts expect to trigger a recession.

“All is not well with the economic world, at least according to bond and commodity traders,” Michael McCarthy, chief market strategist at futures brokerage CMC Markets in Australia, wrote in a note published on Friday.

“These (price) moves signal deteriorating sentiment about the outlook for global growth,” he said.

US output back to record

Crude prices have also been under pressure from a much smaller-than expected decline in U.S. stockpiles and U.S. crude oil production’s return to its record 12.3 million barrels per day.

The U.S. Energy Information Administration (EIA) said U.S. crude stocks fell by around 300,000 barrels last week, to 476.49 million barrels.

That was much less than the 900,000-barrel decline analysts forecast in a Reuters poll and well below the 5.3 million-barrel drawdown the American Petroleum Institute (API) reported on Wednesday.

Meanwhile, top oil exporter Saudi Arabia has raised production in May, a Reuters survey found, but not by enough to compensate for lower Iranianexports which collapsed after the United States tightened the screws on Tehran.

Washington will sanction any country which buys oil from Iran after the expiration of waivers on May 2, U.S. Special Representative for Iran Brian Hook said on Thursday.

Oil prices gain after fall in US crude inventories

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Reuters

KEY POINTS
  • U.S. West Texas Intermediate (WTI) crude futures were up 26 cents, or 0.4%, at $59.07 a barrel by 0258 GMT. They closed down 0.6% on Wednesday after hitting their lowest since March 12 at $56.88.
  • Brent crude futures, the international benchmark for oil prices, were up 14 cents, or 0.2 percent, at $69.59 a barrel. They fell nearly 1% in the previous session after dropping as low as $68.08.
RT: Iran oil platform and Iranian flag 050725
A gas flare on an oil production platform is seen alongside an Iranian flag in the Gulf.
Raheb Homavandi | Reuters

Oil prices rose on Thursday after an industry report showed a decline in U.S.crude inventories that exceeded analyst expectations.

U.S. West Texas Intermediate (WTI) crude futures were up 26 cents, or 0.4%, at $59.07 a barrel by 0258 GMT. They closed down 0.6% on Wednesday after hitting their lowest since March 12 at $56.88.

Brent crude futures, the international benchmark for oil prices, were up 14 cents, or 0.2 percent, at $69.59 a barrel. They fell nearly 1% in the previous session after dropping as low as $68.08.

Crude prices have been supported by output cuts by OPEC and other major producers as well as falling supplies from Iran, but signs of China’s readiness to escalate a trade war with the United States have raised concerns about future demand.

U.S. crude inventories fell by 5.3 million barrels in the week to May 24 to 474.4 million barrels, data from industry group, the American Petroleum Institute, showed.

That was a much larger drop than the 900,000-barrel fall expected by analysts polled by Reuters.

Weekly U.S. oil inventory data has been delayed by Monday’s Memorial Day holiday, with the official data from the Energy Information Administration (EIA) due on Thursday at 11 a.m. EDT (1500 GMT).

“If we do get a decent draw with U.S. inventories from the EIA report, we should see crude continue to stabilize,” Edward Moya, senior market analyst at OANDA in New York told Reuters in an email.

Crude prices remain supported by overall supply tightness.

Iranian May crude exports fell to less than half of April levels at around 400,000 barrels per day (bpd), tanker data showed and two industry sources said, after the United States tightened sanctions on Tehran’s main source of income.

Official data released on Thursday in Japan showed imports of Iranian surged more than 800 percent in April, from a year earlier, as refiners stocked up on crude from the country before the U.S. ended waivers on sanctions this month.

Many expect supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to be extended in a meeting next month.

Crude prices have risen by about 30 percent since the start of the year when OPEC+, which includes Russia, cut production to reduce a global glut.

Oil drops as trade war concerns outweigh supply disruptions

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Reuters

KEY POINTS
  • Front-month Brent crude futures, the international benchmark for oil prices, were at $69.60 a barrel at 0332 GMT, down 51 cents, or 0.7%, from the last session’s close.
  • U.S. West Texas Intermediate (WTI) crude futures were at $58.50 per barrel, down 64 cents, or 1.1%, from their last settlement.
RT: China oil refinery workers
Employees close a valve of a pipe at a PetroChina refinery in Lanzhou, Gansu province.
Stringer | Reuters

Oil prices fell on Wednesday on concerns the Sino-U.S. trade war could trigger a global economic downturn, but relatively tight supply amid OPEC output cuts and political tensions in the Middle East offered some support.

Front-month Brent crude futures, the international benchmark for oil prices, were at $69.60 a barrel at 0332 GMT, down 51 cents, or 0.7%, from the last session’s close.

U.S. West Texas Intermediate (WTI) crude futures were at $58.50 per barrel, down 64 cents, or 1.1%, from their last settlement.

“Crude oil was weak … primarily as the bears on demand are winning compared to the bulls on supply,” James Mick, managing director and energy portfolio manager with U.S. investment firm Tortoise, said in an investor podcast.

“Investors are concerned from a macro perspective about worldwide demand, particularly in the face of the growing trade dispute between the U.S. and China, ” he said.

Fawad Razaqzada, analyst at futures brokerage Forex.com, said another concern was that “falls in emerging market currencies (are) making dollar-priced crude oil dearer to purchase in those nations” and that crude prices could fall back.

Despite the economic concerns, global oil demand is so far holding up well, likely averaging over 100 million barrels per day (bpd) this year for the first time, according to data from the U.S. Energy Information Administration (EIA).

But analysts are concerned that tightening credit amid the economic slowdown will hamper trading in commodities.

“We remain cautious regarding the short-term macroeconomic environment,” commodity brokerage Marex Spectron said in a note.

“Credit availability on the physical commodity markets is of particular concern.”

Eastport, a Singapore-based tanker brokerage, had similar concerns.

“An increase in caution and risk aversion could weigh on economic growth,” it said in a note on Wednesday.

Despite these concerns dragging on oil markets, crude prices remain relatively tight.

“Supply risks remain at elevated levels with continued geopolitical uncertainty in the Middle East, as well as Venezuela’s well-known struggles, ” said Tortoise’s Mick.

Adding to this are ongoing supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) since the start of the year to prop up the market.

OPEC and some allies including Russia are due to meet in late June or early July to discuss output policy going forward.