Oil gains as hopes grow Opec will keep a lid on output

Tokyo — Oil prices rose on Friday as the outlook from the Organization of the Petroleum Exporting Countries (Opec) for oil demand in 2020 fuelled hopes that the producer group and its associates will keep a lid on supply when they meet to discuss policy on output in December.

Optimism that the US and China could soon sign an agreement to end their trade war also seeped into the market after White House economic adviser Larry Kudlow said a deal was “getting close”, citing what he called very constructive discussions with Beijing.

Brent crude futures were up 28c, or 0.5%, at $62.56 a barrel by 4.41am GMT, having dropped 9c on Thursday.

West Texas Intermediate crude was up 28c, or 0.5%, at $57.05 a barrel, after falling 0.6% in the previous session.

The rosy mood came after Opec said on Thursday it expected demand for its oil to fall in 2020.

Many analysts said that supports the view among markets that there is a clear case for the group and other producers like Russia — collectively known as Opec+ — to maintain limits on production that were introduced to cope with a supply glut.

But such a move may backfire, according to Jonathan Barratt, chief investment officer at Probis Group.

“There’s no reason to extend the cuts, we all know the economies are softening,” he said. “If you push prices higher it is going to hurt everyone and even if it doesn’t, it’s only going to play into the US producers’ hands.”

Opec+ on January 1 cut output by 1.2-million barrels per day (bpd), and in July, the alliance renewed the pact until March 2020.

Opec said demand for its crude would average 29.58-million barrels per day next year, 1.12-million bpd less than in 2019. That points to a 2020 surplus of about 70,000 bpd, which is less than indicated in previous reports. The producer group will meet in Vienna in December.

In the US, production keeps rising though there was a bigger-than-expected increase in US stockpiles and rising production last week, something that would often lead investors to sell.

Crude production rose 200,000 bpd to a weekly record of 12.8- million bpd, the Energy Information Administration (EIA) said in its weekly report.

US crude inventories grew last week by 2.2-million barrels, the EIA said, exceeding the 1.649-million barrel rise forecast by analysts in a Reuters poll.

Reuters