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.
GP: US Oil Workers Oil Boom in Texas's Permian Basin 191030
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 prices slip as weak China exports highlights trade war impact

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Reuters
KEY POINTS
  • Brent futures were down 21 cents, or 0.3%, at $64.18 per barrel by 0220 GMT, after gaining about 3% last week on the news that OPEC and its allies would deepen output cuts.
  • West Texas Intermediate oil futures were down 28 cents, or 0.47% to $58.92 a barrel, having risen about 7% last week on the prospects for lower production from ‘OPEC+’, which is made up of the Organization of the Petroleum Exporting Countries (OPEC) and associated producers including Russia.
GP: Sinopec oil China 190322
A man working in a filling station of Sinopec, China Petroleum and Chemical Corporation, in Shanghai, China, on March 22, 2018.
Johannes EIsele | AFP | Getty Images

Oil prices fell on Monday after data showing China’s overall exports of goods and services shrank for a fourth straight month, sending shivers through a market already concerned about damage being down to global demand by the U.S.China trade war.

Brent futures were down 21 cents, or 0.3%, at $64.18 per barrel by 0220 GMT, after gaining about 3% last week on the news that OPEC and its allies would deepen output cuts.

West Texas Intermediate oil futures were down 28 cents, or 0.47% to $58.92 a barrel, having risen about 7% last week on the prospects for lower production from ‘OPEC+’, which is made up of the Organization of the Petroleum Exporting Countries (OPEC) and associated producers including Russia.

Monday’s sudden chill came after customs data released on Sunday showed exports from the world’s second-biggest economy in November fell 1.1% from a year earlier — a sharp reversal from expectations for a 1% rise in a Reuters poll.

The weak start to the week came despite data showing China’s crude imports jumped to a record, revealing just how deep jitters are embedded in the market over the U.S.-China trade row that has stymied global growth and oil demand.

The sagging export data is “a casualty again of the protracted trade war,” said Stephen Innes, chief Asia market strategist at AxiTrader.

Washington and Beijing have been trying to agree a trade deal that will end tit-for-tat tariffs, but talks have dragged on for months as they wrangle over key details.

Monday’s declines also went against signs on Friday that China was easing its stance on resolving its trade dispute with the United States, confirming on Friday that it was waiving import tariffs for some soybean and pork shipments.

The price drops also put an end to a strong run in previous sessions fueled by hopes for the OPEC+ production curb deal.

On Friday, those producers agreed to deepen their output cuts from 1.2 million barrels per day (bpd) to 1.7 million bpd, representing about 1.7% of global production.

“What made the announcement constructive … was the fact that Saudi Arabia said it will produce around 400,000 bpd below its new quota level,” ING Economics said in a note.

“This would effectively take OPEC+ cuts to 2.1 million bpd,” ING said.

Still, U.S. production has surged since the OPEC+ cuts were first introduced in 2017 in an attempt to drain a supply glut that had long weighed on prices.

American output has risen even as the drill count has fallen, reflecting more efficient well extraction.

Energy services firm Baker Hughes said in its closely watched weekly drilling report on Friday that the U.S. drill count fell in the week to Dec. 6 — a seventh week of decline.

Drilling companies cut five oil rigs, leaving a total of 661, the lowest since April 2017.

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 slips as OPEC+ prepares to discuss deeper output cuts

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Reuters
KEY POINTS
  • Brent crude futures dipped 10 cents, or 0.2%, to $62.90 a barrel by 0547 GMT. Brent surged 3.6% on Wednesday.
  • West Texas Intermediate (WTI) crude futures fell 22 cents, or 0.4%, to $58.21 a barrel. They settled up 4.2% on Wednesday.
GP: Oil worker pipes Schlumberger 191001
A oil rigger at the Schlumberger field prepares pipes in Midland, Texas on December 16, 2008.
Kirk McKoy | Los Angeles Times | Getty Images

Oil prices fell in muted trading ahead of OPEC talks in Vienna later on Thursday, trimming some of the sharp gains made the previous session on both the possibility of producers agreeing further output cuts and a sharp drop in U.S. crude inventories.

Brent crude futures dipped 10 cents, or 0.2%, to $62.90 a barrel by 0547 GMT. Brent surged 3.6% on Wednesday.

West Texas Intermediate (WTI) crude futures fell 22 cents, or 0.4%, to $58.21 a barrel. They settled up 4.2% on Wednesday.

Prices are now back roughly to the levels of a week ago, before they plunged on a lack of progress on resolving a 17-month-old China-U.S. trade war that has hit global growth and demand for oil.

U.S. President Donald Trump on Wednesday described trade talks with China as going “very well,” a day after saying it could take until after next year’s presidential election to complete an agreement.

Investor attention has switched to meetings of the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, and the possibility of more production cuts.

The so-called OPEC+ group has been curbing output since 2017 to counter surging production from the United States, which is now the world’s biggest oil producer. OPEC+ has been withholding about 1.2 million barrels per day of production.

OPEC is aiming to push for deeper reductions in output but needs the agreement of Russia and other oil producers to avoid a supply glut next year, after demand growth slowed in 2019, while many analysts are skeptical of further cuts.

“Saudi Arabia’s concerns about its loss of market share and little appetite for increased cuts in Russia, will win the day,” said Franziska Palmas, assistant economist at Capital Economics. “Accordingly, we expect OPEC+ to only roll over its current production quota at this week’s meeting.”

OPEC members will meet among themselves on Thursday and be joined on Friday by Russia and the other producers.

Oil prices surged on Wednesday after U.S. crude inventories fell by much more than expected, according to official figures.

Crude stockpiles fell by 4.9 million barrels last week, the Energy Information Administration said on Wednesday, compared with expectations in a Reuters poll of a 1.9 million-barrel decline.

Still, gasoline and distillate stocks surged by a similar amount as crude’s decline, with refinery runs increasing ahead of winter stockpiling.

Gasoline stocks were up by 3.4 million barrel, double expectations in the Reuters poll. Distillate inventories jumped by nearly three times expectations, gaining 3.1 million barrels.

Oil rises over 1% on hopes for deeper OPEC cuts, Chinese factory growth

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Reuters
KEY POINTS
  • Brent crude futures rose 76 cents, or 1.3%, to $61.25 a barrel by 0415 GMT.
  • West Texas Intermediate (WTI) futures rose 91 cents, or 1.7%, to $56.08 a barrel, having risen by more than $1 earlier.
GP: US Oil workers Oil Boom in Texas's Permian Basin 191014
Workers extracting oil from oil wells in the Permian Basin in Midland, Texas on May 1, 2018.
Benjamin Lowy | Getty Images

Oil prices rose more than 1% on Monday as signs of rising manufacturing activity in China pointed to increasing fuel demand, and hints that OPEC may deepen output cuts at its meeting this week indicated supply may tighten next year.

Brent crude futures rose 76 cents, or 1.3%, to $61.25 a barrel by 0415 GMT. West Texas Intermediate (WTI) futures rose 91 cents, or 1.7%, to $56.08 a barrel, having risen by more than $1 earlier.

On Friday, WTI futures settled 5.1% lower while Brent plunged 4.4% on concerns that talks to end the trade war between the United States and China, the world’s two biggest oil users, would be disrupted by U.S. support for protesters in Hong Kong.

But oil rose on Monday after factory activity in November in China, the world’s biggest oil importer, increased for the first time in seven months because of rising domestic demand amid government stimulus measures.

“At the open, prices remain supported by the surprising resilient China factory activity with the forward-looking PMI’s beating expectations,” said Stephen Innes, chief Asia market strategist at AxiTrader.

Prices were also supported after Iraq’s oil minister said on Sunday that OPEC and allied producers will consider deepening their existing oil output cuts by about 400,000 barrels per day (bpd) to 1.6 million bpd.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, are expected to at least extend existing output cuts to June 2020 when they meet this week.

The OPEC+ group has coordinated output for three years to balance the market and support prices. Their current deal to cut supply by 1.2 million bpd that started from January expires at the end of March 2020.

OPEC’s ministers will meet in Vienna on Dec. 5 and the wider OPEC+ group will meet on Dec. 6.

Ministers will either take no action, extend the cuts without change, or deepen them, ING Economics said in a note.

“We believe that only the final scenario would be constructive for oil prices,” ING said.

OPEC oil output fell in November as Angolan production slipped due to maintenance and Saudi Arabia kept a lid on supply to support prices before the initial public offering of state-owned Saudi Aramco, a Reuters survey found.

On average, OPEC pumped 29.57 million bpd last month, according to the survey, down 110,000 bpd from October’s revised figure.

But U.S. production keeps rising, filling the gaps left by OPEC, with output in September increasing to a new record of 12.46 million barrels per day (bpd), the U.S. government said in a monthly report on Friday.