Oil prices edge higher, but future demand concerns cap gains

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Reuters
KEY POINTS
  • Brent was up by 17 cents, or 0.3 percent, at $68.14 by 0311 GMT, reversing earlier losses of a similar magnitude.
  • U.S. crude futures added 9 cents, or 0.2 percent, to $60.03, also reversing losses in earlier trade.
Reusable: Oil worker 130728
Andrew Burton | Getty Images

Oil prices crept up on Wednesday, extending the previous session’s rise, but gains were kept in check amid growing fears over the impact of a global economic slowdown on demand.

Brent was up by 17 cents, or 0.3 percent, at $68.14 by 0311 GMT, reversing earlier losses of a similar magnitude. On Tuesday, the global benchmark rose 76 cents to $67.97 a barrel, not far below its year-to-date high of $68.69, reached on March 21.

U.S. crude futures added 9 cents, or 0.2 percent, to $60.03, also reversing losses in earlier trade. The U.S. benchmark rose $1.12, or 1.9 percent, to $59.94 a barrel in the previous session.

“We seem to have reached a state of equilibrium after the recent headline-driven choppy trading and we need to see some new impetus for price direction,” said Jeff Halley, senior market analyst at OANDA in Singapore.

That is unlikely to come until there is a conclusion on the U.S.-China trade talks, he added, referring to negotiations that restart on Thursday as the world’s two largest economies seek to end an eight-month old trade war.

Oil rose on Tuesday as Venezuela’s main oil export port of Jose and its four crude upgraders were unable to resume operations following a massive power blackout on Monday, the second in a month.

Prices have risen more than 25 percent this year, supported by supply curbs by the Organization of the Petroleum Exporting Countries and other major producers, along with U.S. sanctions on exports from Venezuela and Iran.

But worries about demand have limited oil’s rally as manufacturing data from Asia, Europe and the United States pointed to an economic slowdown.

The American Petroleum Institute, a trade organization, said late on Tuesday that U.S. crude inventories rose 1.9 million barrels in the latest week, while analysts had forecast a decrease of 1.2 million barrels.

The market was waiting to see whether official figures due later on Wednesday would confirm the API data.

“It will be very interesting to see the inventory numbers tonight. If we see a fall we could see a sharp move higher,” OANDA’s Halley said.

Hedge funds and other money managers have increased bets that demand for oil will be sustained, even as the market rallied last week.

Oil rises on OPEC’s cuts, but soaring US exports and economic slowdown weigh

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Reuters

KEY POINTS
  • Both international Brent and U.S. crude futures advanced.

Oil prices rose on Friday as markets tightened amid output cuts by producer club OPEC, but surging U.S. supply and a global economic slowdown prevented crude from climbing further.

U.S. West Texas Intermediate (WTI) crude oil futures were at $57.41 per barrel at 0350 GMT, up 19 cents, or 0.3 percent, from their last settlement.

International Brent crude futures were at $66.59 per barrel, up 28 cents, or 0.4 percent.

Traders said oil markets were currently tightening.

In Venezuela, oil exports have plunged by 40 percent to around 920,000 barrels per day (bpd) since the U.S. government slapped sanctions against its petroleum industry on Jan. 28.

This drop comes as the Organization of the Petroleum Exporting Countries (OPEC), of which Venezuela is a founding member, has led efforts since the start of the year to withhold around 1.2 million bpd of supply to prop up prices.

“Global (oil) markets appear tighter than many anticipated for this time of year, but scores of unsold barrels can pile up quickly and saturate regions,” Canada’s RBC Capital Markets said in a research note on oil markets.

Despite this, there are signs that point to a more amply supplied market heading further into 2019.

The U.S. Energy Department said on Thursday it was offering up to 6 million barrels of crude from national emergency reserves to raise funds to modernize the U.S. strategic oil reserves.

Additionally, U.S. crude output has hit a record of more than 12 million bpd, pushing exports to an unprecedented 3.6 million bpd in February.

Investment bank RBC estimated that oil from the U.S. Gulf of Mexico port of Houston “can economically move anywhere globally when priced at a discount of $1.70 per barrel relative to the waterborne Brent benchmark”.

Crude loading from Houston last traded at $6.60 a barrel over WTI, which still put it at a discount of more than $2.15 per barrel to Brent.

On the demand side, a Reuters poll showed analysts expect global fuel demand to slow this year amid a broad economic slowdown.

China’s February factory activity fell for a third month as the world’s second-largest economy continued to struggle with weak export orders, a private survey showed on Friday.

The weakness is being felt across the region. South Korea’s exports contracted at their steepest pace in nearly three years in February as demand from its major market China cooled further in yet another sign of faltering momentum in Asia’s fourth-largest economy.

Despite this, fuel consumption especially in Asia’s developing economies, which are key drivers of global oil demand, is so far holding up.

India’s diesel consumption, for instance, is expected to rise to a record this year amid a strong expansion of its heavy duty vehicles amid economic growth of around 7 percent.

Oil slips on rising US rig count, China industrial slowdown

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  • Both Brent and U.S. crude futures slipped.
  • U.S. energy firms last week raised the number of rigs looking for new oil for the first time in 2019 to 862, an additional 10 rigs, Baker Hughes energy services firm said in its weekly report on Friday.
  • Beyond oil supply, a key question for this year will be demand growth, with concerns over a slowing economy in China. the world’s second-largest oil user.

Oil refinery and storage Australia

Jason Reed | Reuters

Oil prices fell on Monday after U.S. energy firms added rigs for the first time this year in a sign that crude production there may rise further, and as China, the world’s second-largest oil user, reported additional signs of an economic slowdown.

U.S. crude oil futures were at $53.43 per barrel at 0253 GMT, down 26 cents, or 0.5 percent, from their last settlement.

International Brent crude oil futures were at $61.50 a barrel, down 14 cents, or 0.2 percent.

High U.S. crude oil production, which rose to a record 11.9 million barrels per day (bpd) late last year, has been weighing on oil markets, traders said.

In a sign that output could rise further, U.S. energy firms last week raised the number of rigs looking for new oil for the first time in 2019 to 862, an additional 10 rigs, Baker Hughes energy services firm said in its weekly report on Friday.

Beyond oil supply, a key question for this year will be demand growth.

Oil consumption has been increasing steadily, likely averaging above 100 million bpd for the first time ever in 2019, driven largely by a boom in China.

However, an economic slowdown amid a trade dispute between Washington and Beijing is weighing on fuel demand-growth expectations.

Earnings at China’s industrial firms shrank for a second straight month in December on falling prices and sluggish factory activity, piling more pressure on the world’s second-largest economy, which reported the slowest pace of growth last year since 1990.

China is trying to stem the slowdown with aggressive fiscal stimulus measures.

But there are concerns that these measures may not have the desired effect as China’s economy is already laden with massive debt and some of the bigger government spending measures may be of little real use.

The increased U.S. supply, the country is now the world’s largest producer, and the economic slowdown are weighing on the oil price outlook.

“We expect U.S. crude oil prices to range between $50-$60 per barrel in 2019 and about $10 more per barrel for Brent,” Tortoise Capital Advisors said in its 2019 oil market outlook.

However, Tortoise added that oil prices would be supported above $50 per barrel as it was “very clear that Saudi Arabia will no longer be willing to accept these lower oil prices”.

The Organization of the Petroleum Exporting Countries (OPEC), de-facto led by Saudi Arabia, started supply cuts late last year to tighten markets and buoy prices.

Oil slips on economic worries, but still set for strong weekly gain

CNBC

  • Both Brent and U.S. crude futures slipped.
  • Despite Friday’s price falls, Brent and WTI are set for weekly gains of more than 7 and 8 percent respectively.

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 slipped on Friday amid concerns over the outlook for the global economy, but output cuts agreed by major exporters underpinned crude prices and kept markets on track for a strong weekly climb.

International Brent crude futures were at $61.55 per barrel at 0333 GMT, down 13 cents, or 0.2 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures dropped 7 cents, or 0.1 percent, to $52.52 per barrel.

Traders said the declines came on lingering concerns over the health of the global economy.

“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.

Most analysts have downgraded their global economic growth forecasts below 3 percent for 2019, with some even fearing a looming recession amid trade disputes and spiralling debt.

For now, however, there is hope that the trade war between Washington and Beijing may be resolved as global markets, including oil, took heart from talks between the two sides this week.

Despite Friday’s price falls, Brent and WTI are set for weekly gains of more than 7 and 8 percent respectively.

Beyond global economics, oil markets are receiving support from supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at reining in a glut that emerged in the second-half of 2018.

A key reason for the emerging glut was the United States where crude oil production soared by more than 2 million barrels per day (bpd) in 2018 to a record 11.7 million bpd.

Consultancy JBC Energy this week said it was likely that U.S. crude oil production was already “significantly above 12 million bpd” by January 2019.

Given the overall supply and demand balance, Swiss bank Julius Baer said it was “price neutral” in its oil forecast.

“We see the oil market as well balanced into the foreseeable future, as the petro-nations make space for further U.S. shale production growth,” said Norbert Ruecker, head of commodity research at the bank.

Oil rises on US-China trade talks, supply cuts

CNBC

  • Both Brent and U.S. crude futures gained more than 1 percent.
  • Financial markets were being lifted on Monday on expectations that face-to-face trade negotiations between delegates from Washington and Beijing, due to start on Monday, would lead to an easing in tensions between the two biggest economies in the world.

Oil refinery and storage Australia

Jason Reed | Reuters

Oil prices rose by more than 1 percent on Monday, lifted by optimism that talks could soon resolve the trade war between the United States and China, while supply cuts by major producers also supported the market.

Brent crude futures were at $57.75 per barrel at 0404 GMT, up 69 cents, or 1.2 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude oil futures were at $48.67 per barrel, up 71 cents, or 1.5 percent.

Financial markets were riding a relief rally on Monday on expectations that face-to-face trade negotiations between delegates from Washington and Beijing, due to start on Monday, would lead to an easing in tensions between the two biggest economies in the world.

The United States and Beijing have been locked in an escalating trade spat since early 2018, raising import tariffs on each other’s goods. The dispute has weighed on economic growth.

Goldman Sachs said in a note on Monday it had downgraded its average Brent crude oil forecast for 2019 from $70 per barrel to $62.50 a barrel because of “the strongest macro headwinds since 2015.”

J.P. Morgan, another U.S. bank, said in a note late last week that “the 3 percent global growth pace we have been anticipating for the next two quarters looks increasingly challenging.

The bank also said that “bond and commodity markets appear to be pricing in on average close to a 60 percent chance of a U.S. recession over the coming year compared to a 40 percent chance by our economists and 27 percent chance by the consensus.”

Despite the likelihood of a slowdown, crude future prices were being supported by supply cuts started late last year by a group of producers around the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as non-OPEC Russia.

OPEC oil supply fell in December by 460,000 barrels per day (bpd), to 32.68 million bpd, a Reuters survey found last week, led by cuts from top exporter Saudi Arabia.

Potentially undermining OPEC’s efforts is swelling U.S. oil supply.

U.S. crude oil production stayed at a record 11.7 million bpd in the last week of 2018, according to weekly data by the Energy Information Administration (EIA) released on Friday.

That makes the United States the world’s biggest oil producer ahead of Russia and Saudi Arabia.

Record output is also swelling U.S. fuel stockpiles.

Crude oil inventories rose by 7,000 barrels in the week ending Dec. 28, to 441.42 million barrels.

Distillate and gasoline stocks, however, rose by a whopping 9.5 million and 6.9 million barrels, to 119.9 million and 240 million barrels respectively, the EIA data showed.

“The U.S. supply glut remains a bearish concern,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.