Oil hits three month highs as strong US consumer spending underpins growth hopes

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Reuters
KEY POINTS
  • Brent crude futures were up 6 cents, or 0.1%, at $67.98 a barrel at 0612 GMT.
  • The West Texas Intermediate contract was up 11 cents, or 0.2%, at $61.79 a barrel.
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Jean-Paul Pelissier | Reuters

Oil prices rose on Friday, hitting three-month highs after data showed record online spending by U.S. consumers, stoking faith in the world’s no. 1 economy even before the hoped-for end to the trade war between Washington and Beijing.

Brent crude futures were up 6 cents, or 0.1%, at $67.98 a barrel at 0612 GMT, after rising to as high as $68.10, the highest since September. The West Texas Intermediate contract was up 11 cents, or 0.2%, at $61.79 a barrel.

A survey on Thursday showed that online holiday purchases by U.S. consumers reached a record, beating analysts’ expectations and sending U.S. stocks to fresh.

U.S. consumers are “showing few signs of tightening their purse strings, which is positive for oil also,” said Stephen Innes chief Asia market strategist at AxiTrader.

Oil prices have also been buoyed by robust hopes that the New Year will usher in an end to the long-running U.S.-China trade tariff war, a dispute that has overshadowed global economic growth prospects and left question marks over future demand for crude.

The lingering ripple effect of the trade row showed up again in data from Japan, the world’s third-biggest economy, on Friday showing that industrial output shrank for a second month in November.

Still, the price Brent has jumped more than a quarter in 2019, while WTI is up around 35%, boosted by moves by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, to curb production. Earlier this month OPEC and its allies agreed to extend and deepen those cuts.

“The short-term momentum remains positive although I expect Asia to content itself with remaining on the sidelines today,” said Jeffrey Halley, senior market analyst, at OANDA.

Oil prices surf US-China trade thaw to three-month highs

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Reuters
KEY POINTS
  • Brent crude futures edged up 8 cents to $66.25 a barrel by 0645 GMT.
  • U.S. West Texas Intermediate (WTI) crude gained 4 cents to $60.97.
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The oil tanker ‘Devon’ prepares to transfer crude oil from Kharg Island oil terminal to India in the Persian Gulf, Iran, on March 23, 2018.
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Oil prices remained atop three-month peaks on Thursday, extending a robust streak that began a week ago, as thawing trade relations between the United States and China supported global markets.

Brent crude futures edged up 8 cents to $66.25 a barrel by 0645 GMT, while U.S. West Texas Intermediate (WTI) crude gained 4 cents to $60.97.

Trading volume was thin, with not even news of President Donald Trump’s impeachment by the U.S. House of Representatives stirring the oil market.

“We’re near the top of trading ranges for both Brent and WTI so it’s interesting to see them holding here,” said Michael McCarthy, chief market analyst at CMC Markets in Sydney.

While there is a clear uptrend in place on the daily technical price chart for WTI to potentially move towards $61.50 a barrel, there are also near-term risks — touching that price level may encourage traders to sell, McCarthy said.

″(Trading) volumes are terrible. A lot of people have given up for the year with no scheduled events to push oil markets around,” he said. The trend leaves oil prices set to rise for a third consecutive week, surfing momentum from announcements this month about deeper output cuts by major producers as well as the ‘Phase One’ deal between the United States and China to resolve their long-running trade war.

The deal between the world’s two largest economies has improved the global economic outlook, lifted the prospect for higher energy demand next year and underpinned oil prices.

In a further sign of thawing relations, China’s finance ministry on Thursday published a new list of six U.S. products that will be exempt from tariffs starting Dec. 26.

Just the week before, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers such as Russia agreed to deepen production cuts by a further 500,000 barrels per day (bpd) from Jan. 1 on top of previous reductions of 1.2 million bpd.

According to weekly data released by the Energy Information Administration on Wednesday, U.S. crude inventories dropped 1.1 million barrels in the week to Dec. 13, while gasoline and distillates stockpiles rose.

Oil prices recoil as specter of trade war, weaker demand haunts market

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Reuters
KEY POINTS
  • Brent futures were down 14 cents, or 0.2%, at $64.11 per barrel by 0450 GMT.
  • West Texas Intermediate oil futures were 13 cents, or 0.2%, lower to $58.89 a barrel.
  • The benchmarks fell 0.2% and 0.3% respectively on Monday.
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Workers extracting oil from oil wells in the Permian Basin in Midland, Texas on May 1, 2018.
Benjamin Lowy | Getty Images

Oil prices slipped on Tuesday for a second straight session as the cons of a slowing global demand outlook outweighed the pros of OPEC’s agreement with associated producers at the end of last week to deepen crude output cuts in early 2020.

Brent futures were down 14 cents, or 0.2%, at $64.11 per barrel by 0450 GMT. West Texas Intermediate oil futures were 13 cents, or 0.2%, lower to $58.89 a barrel. The benchmarks fell 0.2% and 0.3% respectively on Monday.

“The euphoria (on output cuts) was short lived, with an unexpected fall in exports from China highlighting the impact of the trade conflict,” said ANZ Bank in a note on Tuesday.

Data released on Sunday showed exports from China in November fell 1.1% from a year earlier, confounding expectations for a 1% rise in a Reuters poll.

That weakness came amid fresh fronts in the trade war between Washington and Beijing that has stymied global economic growth coming up fast: Washington’s next round of tariffs against some $156 billion Chinese goods are scheduled to take effect on Dec. 15.

U.S. President Donald Trump does not want to implement the next round of tariffs, U.S. Agriculture Secretary Sonny Perdue said on Monday — but he wants “movement” from China to avoid them.

“With the swathe of new tariffs due to kick in on 15 December, the market is watching negotiations closely,” said ANZ.

Analysts said that, though overshadowed for now, the move by “OPEC+” — the Organization of the Petroleum Exporting Countries (OPEC) and associated producers like Russia — to deepen output cuts from 1.2 million barrels per day (bpd) to 1.7 million bpd would remain a mid-term support factor.

But rising non-OPEC production threatens to counteract efforts to limit global crude supplies.

“Despite the voluntary restraint from OPEC, world oil markets remain well supplied … with non-OPEC output expected to rise by well over 2 million bpd next year, with big increases in the U.S., Brazil, and Norway,” said Henning Gloystein, director of global energy and natural resources at Eurasia Group in a note.

U.S. crude oil output recently hit a record of 13 million bpd and is expected to rise further in 2020.

“Going forward, oil prices are likely to be more data-driven, and move in tandem with demand forecasts,” said Margaret Yang, market analyst at CMC Markets.

Oil drops as market awaits ratification of OPEC+ supply cut

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Reuters
KEY POINTS
  • Brent futures were down 21 cents, or 0.3%, at $63.18 by 0258 GMT.
  • West Texas Intermediate oil futures fell 14 cents, or 0.2%, to $58.29 a barrel. They hit $59.12 a barrel on Thursday, the highest since the end of September.
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A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.
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Oil slipped in early Asian trade on Friday, with U.S. crude moving further away from a two-month high after OPEC agreed to increase output curbs in early 2020 but failed to promise further steps after March.

Brent futures were down 21 cents, or 0.3%, at $63.18 by 0258 GMT.

West Texas Intermediate oil futures fell 14 cents, or 0.2%, to $58.29 a barrel. They hit $59.12 a barrel on Thursday, the highest since the end of September.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia – a grouping known as OPEC+ – agreed to more output cuts to avert oversupply early next year as economic growth stagnates amid the U.S.-China trade war.

The agreement, which needs to be formally adopted later on Friday, will cut an extra 500,000 barrels per day (bpd) of production, through tighter compliance and some adjustments. The group has been withholding 1.2 million bpd and the increased amount represents about 1.7% of global oil output.

The “decision seems to be more of a housekeeping move that will narrow the gap between their current target and the over-compliance we have seen from the alliance,” said Edward Moya senior market analyst at OANDA.

A panel of ministers representing OPEC and non-OPEC producers led by Russia recommended the cuts, according to Russian Energy Minister Alexander Novak on Thursday.

Details need to be hammered out at an OPEC+ meeting that starts later on Friday in Vienna.

Any price gains from the OPEC+ output cut are likely to benefit American producers not party to any supply curbing agreement. American drillers have been breaking production records even as they cut the number of oil rigs in operation, filling gaps in global supplies.

“North American shale supply will continue growing even in an environment with lower oil prices,” Rystad Energy said in a note.

Higher oil prices are also supporting the initial public offering of Saudi Arabia’s state-owned oil company, Saudi Aramco, which priced its shares on Thursday at the top of an indicated range.

The sale was the world’s biggest IPO, beating Alibaba Group Holdings’ $25 billion listing in 2014, but fell short of valuing Aramco at $2 trillion, a target sought by Saudi Crown Prince Mohammed bin Salman.

Foreign investors stayed away and the sale was restricted to Saudi individuals and regional investors.

Oil rises before OPEC+ meet, lifted by drop in US crude stocks

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Reuters
KEY POINTS
  • Brent crude futures were up 35 cents, or 0.6%, at $61.17 a barrel by 0246 GMT.
  • U.S. West Texas Intermediate (WTI) crude futures were up by 31 cents, or 0.6%, at $56.41.
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Azeri oil workers operate a large field of drilling rigs on October 12, 2003 outside the capital city of Baku, Azerbaijan.
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Oil prices rose on Wednesday ahead of a meeting of OPEC and its allies to discuss whether to extend production curbs to support the market, while industry data showing that U.S. crude stockpiles fell more than expected helped to lift prices.

Brent crude futures were up 35 cents, or 0.6%, at $61.17 a barrel by 0246 GMT.

U.S. West Texas Intermediate (WTI) crude futures were up by 31 cents, or 0.6%, at $56.41.

The Organization of the Petroleum Exporting Countries (OPEC) and allies that include Russia — a group known as OPEC+ — are preparing to approve deeper crude output cuts this week, when they meet in Vienna, according to Iraq, the group’s second-biggest producer.

Thamer Ghadhban, the oil minister of Iraq, told reporters on Tuesday in Vienna that “a deeper cut is being preferred by a number of key members.”

There is still some skepticism in the market over whether OPEC will cut output further, however, with many analysts expecting only an extension of existing cuts.

“We … think OPEC could announce an extension to supply cuts to cover the whole of 2020 rather than the three to six months the market is currently factoring in,” BNP Paribas Markets said in a note.

An extension “with an option to review policy at the next meeting, would send a strong message of commitment by signatories of the Declaration of Cooperation,” the BNP Paribas analysts said.

OPEC members meet on Thursday and then on Friday the OPEC+ group meets.

OPEC+ has been curbing supply since 2017 and is expected to keep the cuts in place to balance out record production in the United States.

Crude oil inventories in the U.S. fell by more than expected last week, according to the industry group American Petroleum Institute (API). Stockpiles of crude oil fell by 3.7 million barrels, more than double expectations of a decline of 1.7 million barrels.

Gasoline and distillate stocks increased, however, and the market will be looking for confirmation of the crude draw when official figures come out from the U.S. Department of Energy’s Energy Information Administration later on Wednesday.

Keeping a lid on prices are the dwindling prospects of a trade deal between the United States and China. The trade dispute between the world’s two biggest economies has weakened the global economy and held back oil demand growth.

U.S. President Donald Trump said on Tuesday an agreement to end the trade dispute may have to be delayed until after the American presidential election in November 2020.

“Both contracts should remain supported at these levels despite the (U.S.-China) trade concerns as the market looks to the start of the OPEC+ meeting tomorrow,” said Jeffrey Halley, senior market analyst at OANDA.