Oil on track for weekly gains on trade talk hopes, OPEC-led supply cuts

Oil markets are receiving support from supply cuts led by OPEC, aimed at reining in a glut that emerged in the second half of 2018. (Reuters)
Updated 11 January 2019
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Oil on track for weekly gains on trade talk hopes, OPEC-led supply cuts

  • Markets were held in check by expectations of an economic slowdown in 2019
  • Oil markets are receiving support from supply cuts led by the Organization of the Petroleum Exporting Countries

SINGAPORE: Oil prices were on track for solid weekly gains on Friday after financial markets were lifted by hopes the United States and China may soon resolve their trade disputes, and as OPEC-led crude output cuts started to tighten supply.
Despite this, markets were held in check by expectations of an economic slowdown in 2019.
International Brent crude futures were at $61.59 per barrel at 0555 GMT, down 9 cents, or 0.15 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were 4 cents below their last settlement, at $52.55 per barrel.
Brent and WTI are set for their second week of gains, rising nearly 8 percent and 10 percent respectively.
Markets were being supported by hopes that the trade war between Washington and Beijing may be resolved soon after officials said three-day talks this week concluded constructively and that further negotiations would likely follow this month.
Lower oil exports from Iran since last November, when US sanctions against it resumed, have also supported crude.
Despite this, concerns over the health of the global economy lingered on, with signs mounting that China’s growth in 2018 and 2019 would be the lowest since 1990.
“If we experience an economic slowdown, crude will underperform due to its correlation to growth,” said Hue Frame, portfolio manager at Frame Funds in Sydney.
Most analysts have downgraded their global economic growth forecasts below 3 percent for 2019, with some even fearing a looming recession amid trade disputes and spiraling debt.
On the supply side, oil markets are receiving support from supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) aimed at reining in a glut that emerged in the second half of 2018.
A key reason for the emerging glut was the United States where crude oil production soared by more than 2 million barrels per day (bpd) in 2018 to a record 11.7 million bpd.
Consultancy JBC Energy this week said it was likely that US crude oil production was already “significantly above 12 million bpd” by January 2019.
Given the overall supply and demand balance, Swiss bank Julius Baer said it was “price neutral” in its oil forecast.
“We see the oil market as well balanced into the foreseeable future, as the petro-nations make space for further US shale production growth,” said Norbert Ruecker, head of commodity research at the bank.


Davos Diary: An evening in the life of WEF, from Brexit to biodiversity

Updated 35 min 34 sec ago
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Davos Diary: An evening in the life of WEF, from Brexit to biodiversity

  • An absent Theresa May was the star of the show at WEF last year, before the Brexit debacle took such a serious turn
  • Sir David Attenborough was present to spread the word about climate change, which is one of the hot topics of Davos 2019

DAVOS: The Belvedere hotel was buzzing with rumor on the eve of the formal opening day of Davos 2019, and most of it centered on British Prime Minister Theresa May. Will she? Won’t she?
The UK leader has apparently withdrawn from this year’s World Economic Forum (WEF) meeting. She is one of a number of big-hitters who have decided their services are needed at home, in the face of populist “crises” ravaging the US and Europe.
In the Belvedere, the reason for May’s absence was apparent from the first step in the door. There, in the main lobby amid all the corporate branding for the banks and consulting firms that make the hotel their home base for the duration of Davos, flew the Union flag of the UK along with the slogan “Free Trade is GREAT Britain and Northern Ireland.”
Very in-your-face, but it was hard to work out exactly who had hung it there. Was it a Brexiteer, anxious to promote the idea that after withdrawal from the EU, the UK would be free to trade with the rest of the world? Or was it a member of the Remain camp, pushing the line that Britain within the EU would be free to trade with the 27 other member of the customs union?
There were other conspiracy theories being spun around. It was a greeting flag, it was said, to welcome May on what would be a surprise visit after all. British business leaders — marginally more anti- than pro-Brexit — are due to hold their annual Davos lunch event on Thursday.
Some recalled that May was the star of the show there last year, before the Brexit debacle took such a serious turn. Maybe she would want to reprise that triumph? Such is the hectic pace at which rumor spreads in Davos that I heard the same notion being put around later in the day as hard fact. We shall see, but if it happens, you read it here first.
After the excitement of the Belvedere, the agenda moved to the Hilton hotel, back within the ring of steel that surrounds the main WEF congress hall. That was the venue for the welcome bash thrown by the WEF media team, which is always a “must attend” event. Even more so this year because the guest speaker was the distinguished British broadcaster and naturalist Sir David Attenborough. The nonagenarian TV supremo — maker and voiceover to the “Planet” series of nature programs on the BBC — was in Davos to spread the word about climate change, which is one of the hot topics of Davos 2019.
Adrian Monck, the WEF’s head of public and social engagement and a former broadcaster himself, introduced Sir David with the words: “It’s not often you get to hear from a TV legend, but I don’t want to get into my TV career now,” drawing a few laughs around the room.
Sir David’s message on climate change and biodiversity destruction was rather more serious. “There are people here in Davos with enormous power, some who have more power than national states.
I want to tell them that we know what the matter is and we know what we can do to fix it,” he said.
He hopes his new documentary series “Our Planet,” which will air on Netflix, will help change perceptions, especially among climate change deniers. Sir David resisted the chance to criticize President Donald Trump, maybe the denier-in-chief, but he did say: “It is easy to say the problem does not exist, so we need bold action and bravery.”

  • Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai