Swell of optimism lifts oil

Singapore — Oil prices rose by more than 1% on Monday, lifted by optimism that talks could soon resolve the trade war between the US and China, while supply cuts by major producers also supported the market.

Brent crude futures were at $57.75 a barrel at 4.04am GMT, up 69c, or 1.2%, from their last close.

US West Texas Intermediate (WTI) crude oil futures were at $48.67 a barrel, up 71c, or 1.5%.

Financial markets were riding a relief rally on Monday on the expectation that face-to-face trade negotiations between delegates from Washington and Beijing, due to start on Monday, would lead to an easing in tension between the two biggest economies in the world.

The US and China 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 a barrel to $62.50 a barrel because of “the strongest macro headwinds since 2015”.

JP Morgan, another US bank, said in a note late last week that “the 3% 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% chance of a US recession over the coming year compared to a 40% chance by our economists and 27% chance by the consensus”.

Despite the likelihood of a slowdown, crude future prices were being supported by supply cuts started in late 2018 by a group of producers around the Middle East-dominated Opec as well as non-Opec Russia.

Opec oil supply fell in December by 460,000 barrels a day (bbl/day), to 32.68-million barrels a day, a Reuters survey found last week, led by cuts from top exporter Saudi Arabia.

Potentially undermining Opec’s efforts is swelling US oil supply.

US crude oil production stayed at a record 11.7-million barrels a day in the last week of 2018, according to weekly data by the Energy Information Administration (EIA) released on Friday.

That makes the US the world’s biggest oil producer ahead of Russia and Saudi Arabia.

Record output is also swelling US fuel stockpiles.

Crude oil inventories rose by 7,000 barrels in the week ending December 28, to 441.42-million barrels.

Distillate and petrol 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 US supply glut remains a bearish concern,” said Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore.

Reuters

Source: businesslive.co.za