US crude settles 0.6% lower at $52.41 per barrel as slow progress in trade talks counters OPEC cuts

CNBC

Oil tanker

Jean-Paul Pelissier | Reuters

Oil prices fell on Monday as worries surrounding the resumption of U.S.-China trade talks overshadowed support from OPEC-led supply restraint.

Brent crude futures lost 63 cents, or 1 percent to $61.46 a barrel. U.S. West Texas Intermediate (WTI) crude settled 0.6 percent lower at $52.41 per barrel.

Trade talks between the United States and China resumed with working level discussions before high-level discussions later in the week.

While Beijing struck an upbeat note, it also expressed anger at a U.S. Navy mission through the disputed South China Sea. This cast a shadow as the two countries try to reach a deal before the March 1 deadline when U.S. tariffs on $200 billion worth of Chinese imports are scheduled to increase to 25 percent from 10 percent.

On Thursday, U.S. President Donald Trump said he did not plan to meet with Chinese President Xi Jinping before the March 1 deadline, dampening hopes of a quick trade pact.

Escalating U.S.-China trade tensions have cost both countries billions of dollars and disrupted global trade and business flows, roiling financial markets.

“There’s a lot of uncertainty about what’s going on with this trade war, whether they’re going to get anything done,” said Phil Flynn, oil analyst at Price Futures Group in Chicago. “You’ve got concerns about slowing growth.”

Still, oil prices have been buoyed this year by output curbs from the Organization of the Petroleum Exporting Countries and its allies, including Russia, a group known as OPEC+.

The deal, effective from January, aims to cut 1.2 million barrels per day until the end of June to forestall an supply overhang. Suhail Al Mazrouei, the Energy Minister of the United Arab Emirates, said on Monday the oil market should achieve this balance in the first quarter of 2019.

OPEC and its allies meet on April 17 and 18 in Vienna to review the agreement, but a draft cooperation charter seen by Reuters fell short of a new formal alliance among the producers.

U.S. sanctions on Venezuela, along with older sanctions on fellow OPEC member Iran, have also prevented crude prices from falling further.

Venezuela President Nicolas Maduro has sought OPEC support against the sanctions, citing their impact on oil prices and potential risks for other members of the producer group.

Oil prices rise as China-US trade tensions show signs of easing

CNBC

  • Oil prices edged up on Thursday, buoyed by a draw down in inventories in the U.S. and by signs of easing trade tensions between Washington and Beijing.
  • Oil prices have also been supported by OPEC-led supply curbs announced last week, although gains have been muted after the producer group lowered its 2019 demand forecast.

Oil prices rose on Thursday, buoyed by a draw down in U.S. crude stockpiles and indications that China is taking concrete steps to put a trade war truce with Washington into action.

Crude oil prices have also been supported by OPEC-led supply curbs announced last week, although gains were capped after the producer group lowered its 2019 demand forecast.

International Brent crude oil futures were at $60.47 per barrel at 0442 GMT, up 32 cents, or 0.5 percent, from their last close.

U.S. West Texas Intermediate (WTI) crude futures were at $51.35 per barrel, up 20 cents or, 0.4 percent.

In a sign that China is willing to lessen the trade tensions with United States, the country made its first major U.S. soybean purchases in more than six months on Wednesday, helping investors breathe a sigh of relief across broader stock markets, and pushing oil prices up.

A drop in U.S. crude stocks also boosted oil, which has been riding higher on expectations that the OPEC-led planned output cuts would re-balance the market in 2019, analysts said.

U.S. crude inventories fell by 1.2 million barrels in the week to Dec. 7, compared with expectations for a decrease of 3 million barrels.

“The agreement of a reduction in output of 1.2 million barrels per day at last week’s OPEC meeting should see the market push into (supply) deficit in H1 2019,” ANZ analyst Daniel Hynes said.

“Rising U.S. output, weaker economic growth and the production cut agreement roll-off will see a balanced market in H2,” Hynes said. ANZ expects Brent to reach $75 a barrel in the first quarter of 2019.

The Organisation of the Petroleum Exporting Countries (OPEC) said demand for its crude in 2019 would fall to 31.44 million barrels per day (bpd), 100,000 bpd less than predicted last month and 1.53 million bpd less than it currently produces.

This adds to the concerns of several market watchers that the decision led by the group to cut production might not be enough to override a glut or push prices higher.

Oil market participants are concerned about the likelihood of weaker macroeconomic growth, which could rein in any expansion in oil demand, analysts said.

“If we do see a reduction in global growth risk, then we are monitoring increases in demand in combination with supply being absorbed,” said Hue Frame, portfolio manager at Frame Funds in Sydney.

“There are so many moving parts at the moment that it is difficult to provide a convincing forecast,” Frame said.

He added, however, that there is a significant upside to prices going forward.

Trump’s sanctions on Iran may be creating an oil trading boom — in China

CNBC

  • Trade in Chinese yuan-denominated crude oil futures has jumped since President Donald Trump pulled the U.S. out of the Iran nuclear deal.
  • There is speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will spur demand for the Shanghai-listed derivatives.

A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Getty Images
A clerk counts stacks of Chinese yuan at a bank in Beijing, China.

Trade in Chinese yuan-denominated crude oil futures has surged since President Donald Trump pulled the U.S. out of the Iran nuclear deal.

Launched on March 26, crude oil futures on the Shanghai International Energy Exchange (INE) were met with fanfare — and skepticism about how much a state-managed marketplace could displace the well-established crude trade in the New York Mercantile Exchange’s West Texas Intermediate and the Intercontinental Exchange’s Brent futures.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off.”-BMI Research

But Trump’s move to reimpose sanctions on Iran may have spurred interest in the Chinese oil futures. Last Wednesday, daily trade volumes in INE oil futures hit a record of over 240,000 lots, double what they were on Tuesday when news of the renewed sanctions broke.

“There has been speculation that restrictions on Iranian oil sales and the lack of access to dollar financing will boost demand for yuan-denominated Shanghai futures,” said BMI Research in a note on Monday. “With China deepening its energy ties with Iran and given Beijing’s desire both to support the contact and — relatedly — to further internationalize the use of its currency, payment in yuan and benchmarking against Shanghai futures would seem logical.”

Veteran oil trader John Driscoll told CNBC last week that Iranian traders have the option of trading in Chinese yuan-denominated crude oil futures on the Shanghai International Energy Exchange — circumventing any restrictions on dollar-denominated trade and U.S. banks.

Doubts about how long it will last

Even so, some industry watchers remain skeptical over the long-term impact Iran will have on the Chinese futures, as Iranian crude is not deliverable into the Shanghai oil contract.

Even so, interest in the Shanghai oil futures have surpassed expectations, with Chinese state-owned companies and foreign interests taking part in the trade.

At least one oil sales agreement has been signed with state-owned major Sinopec, Reuters reported.

“Concerns over heavy state dominance in the oil sector does not appear to be dampening participation in the contract, neither does its denomination in yuan and the added FX risks this brings,” said BMI, adding that the futures are gaining tracing.

“Beijing ‘s attempts to ‘internationalize’ the contract appear to have paid off,” it added.

Oil prices set for weekly drop as concerns about rising supply weigh

CNBC

  • Oil prices were set to fall this week, with both benchmarks dropping slightly on Friday.
  • Investors were concerned rising supply from the U.S. and other nations threatened to undermine efforts by OPEC and other producers to tighten the market.

A pump jack and pipes at an oil field near Bakersfield, California.

Lucy Nicholson | Reuters
A pump jack and pipes at an oil field near Bakersfield, California.

Oil prices were set to fall this week, with both benchmarks dropping slightly on Friday, on concerns among investors about rising supply from the U.S. and other nations threatening to undermine efforts by OPEC and other producers to tighten the market.

West Texas Intermediate (WTI) oil futures for April delivery fell 3 cents, or 0.1 percent, to $61.16 a barrel at 0354 GMT, after settling up 23 cents on Thursday. WTI is set to fall 1.4 percent this week, reversing the previous week’s 1.3 percent gain.

Brent crude futures trading in London fell 7 cents to $65.05 a barrel after settling up 23 cents. Brent is down 0.7 percent for the week.

Several reports this week renewed investor focus on the potential for rising supply to overwhelm the expected gains in crude demand for 2018.

On Thursday, the International Energy Agency (IEA) said global oil supply increased in February by 700,000 barrels per day (bpd) from a year ago to 97.9 million barrels per day.

The IEA also said supply from producers outside of the Organization of the Petroleum Exporting Countries (OPEC), led by the United States, will grow by 1.8 million bpd this year versus an increase of 760,000 bpd last year.

The supply increase is more than the IEA’s expected demand growth forecast for this year of 1.5 million bpd.

The agency also reported that commercial oil inventories in industrialized nations rose in January for the first time in seven months.

That directly undermines the efforts of producers led by OPEC and Russia, the world’s biggest oil producer, to cut supply in order to reduce global stockpiles.

“The fact that the inventories rose despite intensifying output curbs led by OPEC shows how much non-OPEC supply has risen,” said Tomomichi Akuta, senior economist at Mitsubishi UFJ Research and Consulting in Tokyo.

“Crude prices have been checked by the increase in U.S. supply.”

OPEC and other producers began cutting supply in January 2017 to erase a global crude glut that had built up since 2014.

On Wednesday, the U.S. government reported that crude stockpiles there increased by a more-than-expected 5 million barrels, rising for a third straight week.

Oil prices got scant support from the equities market. Asian stocks declined on Friday, following a four-day losing streak in the S&P 500 a day earlier, amid concerns about more changes in the administration of U.S. President Donald Trump.

Recently, crude futures have moved in sync with equities.

Oil prices fall on relentless rise in US crude output

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  • U.S. crude oil production soared past 10 million barrels per day (bpd) in late 2017, overtaking output by top exporter Saudi Arabia.
  • U.S. production is expected to rise above 11 million bpd by late 2018, taking the top spot from Russia, according to the International Energy Agency.

Rig supervisor David Crow shows off the oil rig he manages for Elevation Resources at the Permian Basin drilling site in Andrews County, Texas, May 16, 2016.

Ann Saphir | Reuters

Oil prices fell on Tuesday, extending losses from the previous session, as the inexorable rise in U.S. crude output weighed on markets.

U.S. West Texas Intermediate (WTI) crude futures were at $61.25 a barrel at 0414 GMT, down 11 cents, or 0.2 percent, from their previous close.

Brent crude futures were at $64.85 per barrel, down 10 cents, or 0.2 percent.

Both crude benchmarks dropped by around 1 percent in their Monday sessions.

“Oil prices fell on the back of concerns that surging U.S. production … could push inventories in the U.S. higher,” ANZ bank said on Tuesday.

U.S. crude oil production soared past 10 million barrels per day (bpd) in late 2017, overtaking output by top exporter Saudi Arabia.

U.S. production is expected to rise above 11 million bpd by late 2018, taking the top spot from Russia, according to the International Energy Agency (IEA).

The rising U.S. output comes largely on the back of onshore shale oil production.

U.S. crude production from major shale formations is expected to rise by 131,000 bpd in April from the previous month to a record 6.95 million bpd, the U.S. Energy Information Administration (EIA) said in a monthly report on Monday.

“Oil prices moved lower … after (the) Energy Information Administration published a report that crude production from seven major U.S. shale plays is expected to see a climb,” said Stephen Innes, head of trading for Asia Pacific at futures brokerage OANDA in Singapore.

That expected increase would top the 105,000 bpd climb in March from the previous month, to what was then expected to be a record high of 6.82 million bpd, the EIA said.

The EIA is due to publish its latest weekly U.S. production data on Wednesday.