Oil prices firm despite weak sentiment on rising US supply

London — Oil prices firmed on Thursday after falling to near five-month lows in the previous session, but sentiment stayed weak due to rising US supply and a stalling global economy.

Front-month Brent crude futures were at $61 a barrel at 8.31am  GMT, up 37c or 0.6%. US West Texas Intermediate (WTI) crude futures fetched $51.84, up 16c or 0.3%.

The two benchmarks on Wednesday hit their lowest since mid-January at $59.45 and $50.60, respectively, amid a surge in US crude inventories and record production, and as a global economic slowdown starts to hit energy demand.

Despite Thursday’s gains, oil markets are moving into bear territory as defined by a 20% fall from recent peaks reached in late April.

US crude production rose to a record 12.4-million barrels per day (bpd) in the week to May 31, the Energy Information Administration (EIA) said on Wednesday, an increase of 1.63-million bpd since May 2018.

US commercial crude inventories jumped by 6.8-million barrels in the same week, to 483.26-million barrels, their highest since July 2017.

The Middle East-dominated oil cartel Opec and some non-affiliated producers including Russia, an alliance known as Opec+, have withheld oil supply since the start of the year to prop up the market.

“Rising US production is more than offsetting the efforts from Opec+, and if we add the negative effect a trade war could have on energy demand, the result is lower prices,” said Alfonso Esparza, senior analyst at futures brokerage Oanda.

Supply is rising outside the US too.

Oil output at Kazakhstan’s Kashagan field reached a record 400,000 bpd this week after the completion of maintenance in May, industry sources told Reuters.

At the same time, there are signs of slowing global economic activity and, as a result, oil demand has increased in recent months, fueled by trade tensions between the US and China.

Morgan Stanley lowered its forecast for growth in oil demand for 2019 from 1.2-million bpd to 1.0-million bpd, subsequently cutting its Brent price forecast for the second half of 2019 to $65 to $70 per barrel, from $75 to $80.

“Demand is weakening much more rapidly than we had expected,” Morgan Stanley analysts said in a note dated Wednesday. “We now estimate 2019 to be a year in which supply and demand broadly balance.” 

Reuters