Oil slips from 2019 highs as economic concerns weigh

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Reuters

KEY POINTS
  • Brent crude oil futures were at $67.72 per barrel at 0419 GMT, down 14 cents, or 0.2 percent, from their last close. Brent hit a four-month high of $68.69 per barrel the day before.
  • U.S. West Texas Intermediate (WTI) futures were at $59.84 per barrel, down 14 cents, or 0.2 percent from their last settlement. WTI also hit a 2019 peak at $60.39 the previous day.
RT: Offshore oil rig Norway 160211
An offshore oil rig off the coast of Norway.
Nerijus Adomaitis | Reuters

Oil prices eased from 2019 peaks on Friday as economic growth concerns weighed on sentiment, pausing a three-month rally driven by OPEC-led supply cuts and U.S. sanctions against Iran and Venezuela.

Brent crude oil futures were at $67.72 per barrel at 0419 GMT, down 14 cents, or 0.2 percent, from their last close. Brent hit a four-month high of $68.69 per barrel the day before.

U.S. West Texas Intermediate (WTI) futures were at $59.84 per barrel, down 14 cents, or 0.2 percent from their last settlement. WTI also hit a 2019 peak at $60.39 the previous day.

“Global economic growth still remains a concern,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Economic growth has slowed across Asia, Europe and North America, potentially denting fuel consumption.

Oil prices this year have been propped up by supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and non-affiliated allies such as Russia, often referred to as ‘OPEC+’.

Canadian investment bank RBC Capital Markets said oil was “still below the fiscal breakeven level in a number of OPEC countries,” meaning that many producers have an interest in further propping up the market.

“With the driver of the OPEC bus, Saudi Arabia, showing no signs of wavering in the face of renewed pressure from Washington, we believe that OPEC is likely to extend the deal for the duration of 2019 when they next assemble in Vienna in June, ” RBC said.

RBC said Russia was only a reluctant partner in the supply cuts, but would “ultimately opt to preserve the arrangement and retain a leadership role of a 21-nation group that accounts for around 45 percent of global oil output.”

Beyond OPEC and Russia’s supply policy, oil prices have also been boosted by U.S. sanctions on OPEC-members Iran and Venezuela.

Iranian crude oil shipments have averaged just over 1 million bpd in March, down from 1.3 million bpd in February and a 2018 peak of at least 2.5 million bpd in April, before the U.S. sanctions were announced.

Venezuelan crude oil production has also dwindled amid U.S. sanctions and an internal political and economic crisis, plunging from a high of more than 3 million bpd at the start of the century to not much more than 1 million bpd currently.

Further price increases have also been crimped by a jump of more than 2 million bpd in U.S. crude oil production since early 2018 to a record 12.1 million bpd, making the United States the world’s biggest producer ahead of Russia and Saudi Arabia.

Soaring U.S. output has resulted in increasing exports, which have doubled over the past year to more than 3 million bpd.

The International Energy Agency (IEA) estimated that the United States would become a net crude oil exporter by 2021.

Oil prices rise as Saudi Arabia cuts supply to United States

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  • Both U.S. crude futures and international Brent futures saw gains.
  • The price rise came after a report from the U.S. Energy Information Administration (EIA) on Wednesday showed a drop in Saudi crude supply to the United States.

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

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

Oil prices rose for a third day on Thursday, pushed up by signs of lower imports into the United States as part of efforts by OPEC to tighten the market.

U.S. West Texas Intermediate (WTI) crude futures were at $54.58 per barrel at 0249 GMT, up 35 cents, or 0.7 percent, from their last settlement. WTI closed up 1.7 percent on Wednesday, when prices touched their highest since Nov. 21 at $54.93 a barrel.

International Brent crude oil futures were up 52 cents, or 0.8 percent, at $62.17 per barrel.

The price rise came after a report from the U.S. Energy Information Administration (EIA) on Wednesday showed a drop in Saudi crude supply to the United States.

“Crude oil prices were stronger after signs emerged that OPEC cuts are impacting trade. EIA’s weekly report showed that U.S. imports from Saudi Arabia fell by more than half from the previous week to 442,000 barrels per day (bpd). This is the second lowest level in weekly data going back to 2010,” ANZ bank said.

Saudi Arabia is the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), which together with some non-OPEC producers, including Russia, announced supply cuts late last year aimed at tightening the market and propping up prices.

Despite these efforts, oil remains in ample supply, not least because of soaring U.S. crude oil production, which jumped by more than 2 million bpd last year to a record 11.9 million bpd.

This shows in high U.S. commercial crude oil stockpiles, which rose by 919,000 barrels in the week to Jan. 25, to 445.94 million barrels, EIA data showed. Stockpiles are 6.6 percent higher than a year ago.

Oil firms as China’s economic slowdown was not as big as some expected

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  • Both Brent and U.S. crude futures saw gains.
  • In an expected cooling, China’s economy grew by 6.6 percent in 2018, its slowest expansion in 28 years and down from a revised 6.8 percent in 2017, official data showed on Monday.

Oil tanker

Jean-Paul Pelissier | Reuters

Oil prices firmed on Monday after data showed China’s economic slowdown was not as big as some analysts had expected, with supply cuts led by the Organization of the Petroleum Exporting Countries also offering support.

International Brent crude oil futures were at $62.83 per barrel at 0259, up 13 cents, or 0.2 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $53.92 a barrel, up 12 cents, or 0.2 percent.

Both oil price benchmarks had dipped into the red earlier in the session on fears that China’s 2018 economic growth figures would be weaker.

In an expected cooling, China’s economy grew by 6.6 percent in 2018, its slowest expansion in 28 years and down from a revised 6.8 percent in 2017, official data showed on Monday. China’s September-December 2018 growth was at 6.4 percent, down from 6.5 percent in the previous quarter.

Although the slowdown was in line with expectations and not as sharp as some analysts had expected, the cooling of the world’s number two economy casts a shadow over global growth.

“The global outlook remains murky, despite emerging positives from a dovish Fed (now boosting U.S. mortgage applications), faster China easing (China credit growth stabilizing) and a more durable U.S.-China truce,” U.S. bank J.P. Morgan said in a note.

Despite this, analysts said supply cuts led by OPEC would likely support crude oil prices.

“Brent can remain above $60 per barrel on OPEC+ compliance, expiry of Iran waivers and slower U.S. output growth,” J.P. Morgan said.

It recommended investors should “stay long” crude oil.

Researchers at Bernstein Energy said the supply cuts led by OPEC “will move the market back into supply deficit” for most of 2019 and that “this should allow oil prices to rise to U.S. $70 per barrel before year-end from current levels of U.S.$60 per barrel.”

In the United States, energy firms cut 21 oil rigs in the week to Jan. 18, taking the total count down to 852, the lowest since May 2018, energy services firm Baker Hughes said in a weekly report on Friday.

It was biggest decline since February 2016, as drillers reacted to the 40 percent plunge in U.S. crude prices late last year.

However, U.S. crude oil production still rose by more than 2 million barrels per day (bpd) in 2018, to a record 11.9 million bpd.

With the rig count stalling, last year’s growth rate is unlikely to be repeated in 2019, although most analysts expect annual production to average well over 12 million bpd, making the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.

Brent crude edges up, but concern over demand limits gains

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  • Brent fell 11 percent last week and hit its lowest since September 2017, while U.S. futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 percent so far this quarter.
  • The price drop has caused U.S. shale oil producers to curtail drilling plans for next year.

Oil tanker

Jean-Paul Pelissier | Reuters

Oil prices edged up on Monday after evidence that a recent fall to 15-month lows may be affecting output in the United States, the world’s largest producer, although concern about the outlook for demand tempered gains.

Brent crude futures were up 12 cents at $53.94 a barrel by 0858 GMT, while U.S. crude futures lost 3 cents to $45.56.

Brent fell 11 percent last week and hit its lowest since September 2017, while U.S. futures slid to their lowest since July 2017, bringing the decline in the two contracts to 35 percent so far this quarter.

The price drop has caused U.S. shale oil producers to curtail drilling plans for next year.

The boom in shale output has made the United States the world’s largest oil producer, overtaking Saudi Arabia and Russia.

Physical prices for Brent have also fallen in the last six weeks, driven by a drop in demand from Chinese refiners in particular, which has weighed on the value of barrels of anything from North Sea to Nigerian crude.

“The recent weakness in the physical Brent structure can be attributed to a broader easing of purchases by Asian refiners at this point, with lower end-Q1 intake weighing on spot assessments, and we can expect this pressure to carry through over the coming weeks,” consultancy JBC Energy said in a report.

Still, the macroeconomic picture and its impact on oil demand continue to pressure prices. Global equities have fallen nearly 9.5 percent so far in December, their biggest one-month slide since September 2011, when the euro zone debt crisis was unfolding.

The trade dispute between the United States and China and the prospect of a rapid rise in U.S. interest rates have brought global stocks down from this year’s record highs and ignited concern that oil demand will be insufficient to soak up any excess supply.

The Organization of the Petroleum Exporting Countries and allies led by Russia agreed this month to cut oil production by 1.2 million barrels per day from January.

Should that fail to balance the market, OPEC and its allies will hold an extraordinary meeting, United Arab Emirates Energy Minister Suhail al-Mazrouei said on Sunday.

“Oil ministers are already taking to the airwaves with a ‘price stability at all cost’ mantra,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

Oil prices rebound on hints of stabilization in markets

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  • U.S. crude oil had climbed 37 cents, or 0.8 percent, to $46.24 per barrel by 0122 GMT, after plunging 7.3 percent the day before in a session when it touched its lowest since August last year at $45.79.
  • Global benchmark Brent was up 0.85 percent, or 49 cents, at $56.75 per barrel. It dropped 5.62 percent on Tuesday, at one point marking a 14-month low of $56.16 a barrel.

Oil prices rebounded on Wednesday after falling for the past three sessions with worries about oversupply and a slowing global economy keeping markets under pressure though sentiment may be shifting as falling equity markets seemed to stabilize.

West Texas Intermediate futures (WTI) climbed 4 cents cents, or 0.09 percent, to $46.28 per barrel by 0443 GMT, after plunging 7.3 percent the day before in a session when it touched its lowest since August 2017.

Global benchmark Brent crude futures rose 0.4 percent, or 23 cents, at $56.49 per barrel. It dropped 5.6 percent on Tuesday, at one point hitting a 14-month low.

WTI prices are holding as “traders look for some solace in U.S. equity markets as risk sentiment appears to be stabilising,” said Stephen Innes, head of trading for Asia-Pacific at OANDA.

“But we are far removed from any bullish flip in investor sentiment.”

The S&P 500 ended up slightly on Tuesday and the Dow Jones Industrial Average rose 0.35 percent as both indices ended losing streaks.

Further adding to the oversupply concerns, the American Petroleum Institute said on Tuesday U.S. crude stocks rose unexpectedly last week, while gasoline inventories increased.

If the build in crude stockpiles is confirmed by U.S. government data Wednesday, it will be the first increase in three weeks.

Meanwhile, analysts said that upcoming output cuts led by the Organization of the Petroleum Exporting Countries (OPEC) had so far failed to stimulate the market as they were not due to kick in until next month.

Output from de facto OPEC leader Saudi Arabia as well as the United States and Russia — leading producers outside the group — has been at or near record highs.

The U.S. government said shale production is expected to climb to over 8 million barrels per day (bpd) for the first time by the end of December.

Russian oil output is so far this month at a record 11.42 million bpd, an industry source told Reuters.

However, there were some factors tightening supply, with Libya’s state oil company declaring force majeure at the country’s largest oilfield.

That came a week after the firm announced a contractual waiver on exports from the field following its seizure by protesters.

Elsewhere, a speech marking 40 years of market liberalization by Chinese President Xi Jinping offered no specific support measures for the second-largest economy, disappointing investors who were expecting fiscal policy loosening and a tax cut.

China’s Shanghai crude futures fell 5.8 percent to trade at 389.4 yuan ($56.53)per barrel on Wednesday, the lowest since their launch in March.

Oil market investors were also turning their attention to the outcome of a two-day meeting of the U.S. Federal Reserve that is due to end on Wednesday.

The Fed is expected to raise U.S. interest rates for the fourth time this year though the central bank may temper the outlook for further increases in 2019 due to concerns about the economy.