Oil prices rise on trade talk optimism, OPEC cuts

Looming over the OPEC-led cuts, however, is a surge in US oil supply, driven by a steep rise in onshore shale oil drilling and production. (AP)
Updated 08 January 2019
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Oil prices rise on trade talk optimism, OPEC cuts

  • Despite optimism around the talks in Beijing, some analysts warned that the relationship between Washington and Beijing remained on shaky grounds, and that tensions could flare up again soon

SINGAPORE: Oil prices rose on Tuesday on hopes that US-Chinese talks in Beijing would bring a halt to trade disputes between the world’s biggest economies, while OPEC-led supply cuts tightened markets.
International Brent crude futures were at $57.77 per barrel at 0113 GMT, up 44 cents, or 0.8 percent from their last close.
US West Texas Intermediate (WTI) crude oil futures were at $48.85 per barrel, up 33 cents, or 0.7 percent.
US Commerce Secretary Wilbur Ross said late on Monday that Beijing and Washington could reach a trade deal that “we can live with” as dozens of officials from the world’s two largest economies held talks in a bid to end their trade dispute that has roiled global markets since last year.
Asian stock markets rose as investors hope Washington and Beijing will reach some sort of agreement.
Despite optimism around the talks in Beijing, some analysts warned that the relationship between Washington and Beijing remained on shaky grounds, and that tensions could flare up again soon.
“We remain concerned about the world’s most important bilateral relationship,” political risk consultancy Eurasia Group said in its 2019 outlook.
“The US political establishment believes engagement with Beijing is no longer working, and it’s embracing an openly confrontational approach ... (and) rising nationalist sentiment makes it unlikely that Beijing will ignore US provocations,” Eurasia Group said.
Beyond politics, oil markets are being supported by supply cuts started late last year by a group of producers around the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) as well as non-OPEC member Russia.
“Crude oil prices have benefited from OPEC production cuts and steadying equities markets,” said Mithun Fernando, investment analyst at Australia’s Rivkin Securities.
Looming over the OPEC-led cuts, however, is a surge in US oil supply, driven by a steep rise in onshore shale oil drilling and production.
As a result, US crude oil production rose by a whopping 2 million barrels per day (bpd) last year to a world record 11.7 million bpd.
With drilling activity still high, most analysts expect US oil production to rise further this year.
Consultancy JBC Energy said it was likely that US crude oil production was already “significantly above 12 million bpd” by early January.


Oil slips 1% as US stockpiles surge, economic concerns grow

Updated 51 min 33 sec ago
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Oil slips 1% as US stockpiles surge, economic concerns grow

  • Crude futures already fell by around 2 percent the previous day
  • US crude oil production climbed by 100,000 barrels per day (bpd) to 12.2 million bpd

SINGAPORE: Oil prices dropped by around 1 percent on Thursday, extending falls from the previous session amid surging US crude inventories and weak demand from refineries.
Brent crude futures, the international benchmark for oil prices, were at $70.36 per barrel at 0652 GMT, down 63 cents, or 0.9 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were down by 51 cents, or 0.8 percent, at $60.91 per barrel.
Crude futures already fell by around 2 percent the previous day.
“Rising inventories and a slowdown with refined product demand could suggest we could see further pressure (on prices),” said Edward Moya, senior analyst at futures brokerage OANDA.
US crude oil inventories rose last week, hitting their highest levels since July 2017, due to weak refinery demand, the Energy Information Administration said on Wednesday.
Commercial US crude inventories rose by 4.7 million barrels in the week ended May 17, to 476.8 million barrels, their highest since July 2017, the EIA data showed.
Beyond weak refinery demand for feedstock crude oil, the increase in commercial inventories also came on the back of planned sales of US strategic petroleum reserves (SPR) into the commercial market.
US crude oil production climbed by 100,000 barrels per day (bpd) to 12.2 million bpd, putting output near its record of 12.3 million bpd reached late last month.
Ole Hansen, head of commodity strategy at Saxo Bank, said “concerns about slowing (oil) demand growth due to the negative impact on the global economy of the US–China trade war” were also weighing on oil prices.
Countering these bearish price factors have been escalating political tensions between the United States and Iran, as well as ongoing supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) that started in January in an effort to prop up the market.
“Large but opposing forces have kept Brent in a $70-$75 per barrel range in recent weeks,” Morgan Stanley said in a note on oil markets published this week.
“Macroeconomic data has rapidly deteriorated, and this is reflected in weaker oil demand. At the same time, downside risk to supply is materializing in key countries (adding to OPEC’s production cuts),” the US bank said.
“On balance, however, we still see tightness in 2H19,” Morgan Stanley said, adding it expected Brent to trade in the $75-$80 per barrel range in the second half of 2019.
French bank BNP Paribas said high inventories meant that OPEC would likely keep its voluntary supply cuts in place.
“Supply management is here to stay,” the bank said.