Oil prices stable amid OPEC supply cuts, but US-China trade war drags

Markets remained tense amid concerns the Sino-US trade war could trigger a broad economic slowdown. Above, a China National Offshore Oil Corporation oil refinery in China’s southern Guangdong province. (Reuters)
Updated 27 May 2019
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Oil prices stable amid OPEC supply cuts, but US-China trade war drags

  • Producers, known as OPEC+, have been withholding supply since the start of the year to tighten the market and prop up prices
  • But Monday’s gain could not make up for falls last week

SINGAPORE: Oil prices were stable on Monday amid ongoing supply cuts by producer club OPEC, although markets remained tense amid concerns the Sino-US trade war could trigger a broad economic slowdown.
Front-month Brent crude futures, the international benchmark for oil prices, were at $68.79 per barrel at 0247 GMT, up 10 cents, or 0.2 percent, from their last close.
US West Texas Intermediate (WTI) crude futures were at $58.54 per barrel, 9 cents below their last settlement.
“The relative strength of the very short-end of the (price) curve likely reflects the market pricing in a known variable of lower supplies from OPEC+,” said Edward Bell, commodity analyst at Emirates NBD bank.
A group of producers led by the Organization of the Petroleum Exporting Countries (OPEC), known as OPEC+, has been withholding supply since the start of the year to tighten the market and prop up prices.
But Monday’s gain could not make up for falls last week, when both crude futures contracts registered their biggest price declines this year amid concerns that the US-China trade dispute could accelerate a global economic slowdown.
“Sentiment remains fragile and vulnerable to any deterioration in US-China trade frictions,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.
Money managers cut their net long US crude futures and options positions in the week to May 21, the US Commodity Futures Trading Commission (CFTC) said on Friday.
“Some signs of low confidence are creeping into positioning data,” Bell said.
In oil futures markets, the trade war effect is better seen beyond the spot market.
“The impact from a trade war is a more medium- to long-term issue and December spreads weakened sharply over the last week,” he said.
Beyond financial markets, there are also signs on the ground of a slowdown in growth in oil demand.
Amid the trade disputes between the United States and China, profits for China’s industrial firms dropped in April on slowing demand and manufacturing activity, according to data published by the National Bureau of Statistics (NBS) on Monday.
China’s automobile sales, a key driver of global oil demand growth, will reach around 28.1 million units this year, unchanged from levels seen in 2018, when the country’s auto market contracted for the first time in more than two decades, state news agency Xinhua reported on Sunday.
The outlook for flat car sales may be too optimistic still, as monthly sales have so far declined for 10 consecutive months.
A bright spot for carmakers, although not for the oil industry, is that sales of new energy vehicles are likely to grow by about 27 percent to hit 1.6 million units, from 1.26 units in 2018, the report said.


‘Huge increase’ in crude prices not expected: IEA executive director

Updated 19 July 2019
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‘Huge increase’ in crude prices not expected: IEA executive director

  • The International Energy Agency is revising its 2019 global oil demand growth forecast down to 1.1 million barrels per day
  • IEA’s Fatih Birol: Serious political tensions could impact market dynamics

NEW DELHI: The International Energy Agency (IEA) doesn’t expect oil prices to rise significantly because demand is slowing and there is a glut in global crude markets, its executive director said on Friday.
“Prices are determined by the markets ... If we see the market today, we see that the demand is slowing down considerably,” said IEA’s Fatih Birol, in public comments made during a two-day energy conference in New Delhi.
The IEA is revising its 2019 global oil demand growth forecast down to 1.1 million barrels per day (bpd) and may cut it again if the global economy and especially China shows further weakness, Birol told Reuters in an interview on Thursday.
Last year, the IEA predicted that 2019 oil demand would grow by 1.5 million bpd. But in June this year it cut the growth forecast to 1.2 million bpd.
“Substantial amount of oil is coming from the United States, about 1.8 million barrels per day, plus oil from Iraq, Brazil and Libya,” Birol said.
Under normal circumstances, he said, he doesn’t expect a “huge increase” in crude oil prices. But Birol warned serious political tensions could yet impact market dynamics.
Crude oil prices rose nearly 2 percent on Friday after a US Navy ship destroyed an Iranian drone in the Strait of Hormuz, a major chokepoint for global crude flows.
Referring to India, Birol stressed the country could cut its imports, amid rising oil demand in the country, by increasing domestic local oil and gas production.
Prime Minister Narendra Modi had set a target in 2015 to cut India’s dependence on oil imports to two-thirds of consumption by 2022, and half by 2030. But rising demand and low domestic production have pushed imports to 84 percent of total needs in the last five years, government data shows.
Meanwhile, the IEA doesn’t expect a global push toward environmentally friendly electric vehicles can dent crude demand significantly, Birol said, as the main driver of crude demand globally has been petrochemicals, not cars.
He said the impact of a serious electric vehicle adoption push by the Indian government would not be felt immediately.