Oil prices rise on trade talk optimism, OPEC cuts

CNBC

  • Both Brent and U.S. crude futures saw gains of at least 0.7 percent.
  • Asian stock markets rose as investors hope Washington and Beijing will reach some sort of agreement.

Oil prices rose on Tuesday on hopes that U.S.-Chinese talks in Beijing would bring a halt to trade disputes between the world’s biggest economies, while OPEC-led supply cuts tightened markets.

International Brent crude futures were at $57.77 per barrel at 0113 GMT, up 44 cents, or 0.8 percent from their last close.

U.S. West Texas Intermediate (WTI) crude oil futures were at $48.85 per barrel, up 33 cents, or 0.7 percent.

U.S. Commerce Secretary Wilbur Ross said late on Monday that Beijing and Washington could reach a trade deal that “we can live with” as dozens of officials from the world’s two largest economies held talks in a bid to end their trade dispute that has roiled global markets since last year.

Asian stock markets rose as investors hope Washington and Beijing will reach some sort of agreement.

Despite optimism around the talks in Beijing, some analysts warned that the relationship between Washington and Beijing remained on shaky grounds, and that tensions could flare up again soon.

“We remain concerned about the world’s most important bilateral relationship,” political risk consultancy Eurasia Group said in its 2019 outlook.

“The U.S. political establishment believes engagement with Beijing is no longer working, and it’s embracing an openly confrontational approach … (and) rising nationalist sentiment makes it unlikely that Beijing will ignore U.S. provocations,” Eurasia Group said.

Beyond politics, oil markets are 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 member Russia.

“Crude oil prices have benefited from OPEC production cuts and steadying equities markets,” said Mithun Fernando, investment analyst at Australia’s Rivkin Securities.

Looming over the OPEC-led cuts, however, is a surge in U.S. oil supply, driven by a steep rise in onshore shale oil drilling and production.

As a result, U.S. crude oil production rose by a whopping 2 million barrels per day (bpd) last year to a world record 11.7 million bpd.

With drilling activity still high, most analysts expect U.S. oil production to rise further this year.

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

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.

Oil stabilises on China-US trade talks, OPEC cuts

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  • China and the U.S. are set to hold trade talks at the vice ministerial level on Jan. 7-8.
  • Crude prices had previously fallen after the United States followed most other major economies into a manufacturing downturn.
  • Meanwhile, traders said oil prices are expected to receive some support as supply cuts announced late last year by the Organization of the Petroleum Exporting Countries (OPEC) start to kick in.

174362712AB024_OIL_BOOM_SHI

Andrew Burton | Getty Images

Oil prices steadied on Friday after China said it would hold talks with Washington on Jan. 7-8 aimed at solving trade disputes between the two world’s biggest economies.

Crude prices had previously fallen after the United States followed most other major economies into a manufacturing downturn.

U.S. West Texas Intermediate (WTI) crude oil futures were at $47.15 per barrel at 0345 GMT, 6 cents, or 0.1 percent above their last settlement.

International Brent crude futures were close to their last close, at $55.93 a barrel.

Both crude benchmarks were down earlier in the session on concerns that the Sino-American trade war would lead to a global economic slowdown.

Traders said the firmer prices came after China’s commerce ministry said on Friday that it would hold vice ministerial level trade talks with U.S. counterparts in Beijing on Jan. 7-8, as the two sides look to end a dispute that is inflicting increasing pain on both economies and roiling global financial markets.

The two nations have been locked in a trade war for much of the past year, disrupting the flow of hundreds of billions of dollars worth of goods and stoking fears of a global economic slowdown.

Data for December from the Institute for Supply Management (ISM) on Thursday showed the broadest U.S. slowdown in growth for more than a decade, as the trade conflict with China, falling equity prices and increasing uncertainty started to take a toll on the world’s biggest economy.

Leading economies in Asia and Europe have already reported a fall in manufacturing activity.

“Led by a sharp fall in the U.S. ISM and China’s PMI falling below 50, the global manufacturing PMI fell to 51.5 in December (52.8 previously), a 27-month low,” Morgan Stanley said in a note following the release of the ISM data.

“The recent run of incoming data, coupled with global tightening financial conditions, has increased the downside risks to an already moderating global growth outlook,” the U.S. bank said.

OPEC cuts

Despite the global market turmoil, traders said oil prices are expected to receive some support as supply cuts announced late last year by the Organization of the Petroleum Exporting Countries (OPEC) start to kick in.

OPEC oil supply fell by 460,000 barrels per day (bpd) between November and December, to 32.68 million bpd, a Reuters survey found on Thursday, as top exporter Saudi Arabia made an early start to a supply-limiting accord, while Iran and Libya posted involuntary declines.

OPEC, Russia and other non-members – an alliance known as OPEC+ – agreed last December to reduce supply by 1.2 million bpd in 2019 versus October 2018 levels. OPEC’s share of that cut is 800,000 bpd.

“If OPEC is faithful to its agreed output cut together with non-OPEC partners, it would take 3-4 months to mop up the excess inventories,” energy consultancy FGE said.

Considering the planned cuts versus ongoing increases in U.S. crude production, which hit a record 11.7 million bpd by late 2018, FGE said it expected Brent prices to range between $55-$60 per barrel in the first months of 2019.

Oil prices slide on supply surge, global market turmoil scares off investors

CNBC

  • Saudi Arabia is expected to cut February prices for heavier crude grades sold to Asia by up to 50 cents a barrel due to weaker fuel oil margins, according to respondents to a Reuters survey on Thursday.
  • Markets were roiled by a more than 3 percent slump of the U.S. dollar against the Japanese yen overnight, and after tech giant Apple cut its sales forecast.

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 prices fell on Thursday amid volatile currency and stock markets, and as analysts warned of an economic slowdown for 2019 just as crude supply is rising globally.

U.S. West Texas Intermediate (WTI) crude oil futures dropped by around 2 percent from their last settlement, or 93 cents, to $45.61 by 0404 GMT.

International Brent crude futures were down 1.1 percent, or 60 cents, at $54.31 a barrel.

In physical oil markets, top exporter Saudi Arabia is expected to cut February prices for heavier crude grades sold to Asia by up to 50 cents a barrel due to weaker fuel oil margins, respondents to a Reuters survey said on Thursday.

Markets were roiled by a more than 3 percent slump of the U.S. dollar against the Japanese yen overnight, and after tech giant Applecut its sales forecast.

“We did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Apple chief executive Tim Cook said.

The slowdown in China and turmoil in stock and currency markets is making investors nervous, including in oil markets.

Investment bank Jefferies said in a 2019 opening note to clients and employees that the start of the year “doesn’t feel as firm, the future doesn’t feel as certain and optimistic, and the path forward does not seem as clear.”

The U.S. bank added that “markets are extremely volatile and virtually impossible to anticipate or navigate.”

Shipping brokerage Eastport said the turmoil in markets is scaring off investors.

“Falling share prices tend to damage consumer sentiment, which often results in increased caution and reduced spending…Business managers also tend to limit apex, thus weighing on investment as well.”

Supply surge

Oil markets have also come under pressure from a surge in supply.

U.S. crude production stood at a record 11.7 million barrels per day (bpd) in late 2018, making the United States the world’s biggest oil producer.

Others are not sitting idle, with Russian output reaching a record of more than 11 million bpd in 2018.

Supply from Iraq, the number two producer in the Organization of the Petroleum Exporting Countries (OPEC) behind Saudi Arabia, is also up, with December exports at 3.73 million bpd, up from 3.37 million bpd in November.

With production rising and demand growth expected to slow, many analysts expect a global oil supply overhang to build in the first months of 2019.

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.