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

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.


Russia blames missed oil target on rise in gas condensate output

Updated 10 min 11 sec ago

Russia blames missed oil target on rise in gas condensate output

  • Output falls but remains above global production cap as minister vows country will work to fulfill its obligations
  • OPEC, Russia and other oil producers, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from the start of this year

MOSCOW: Russia produced more oil in September than envisaged by a global deal due to an increase in gas condensate output as the country prepared for winter, local news agencies reported
on Sunday.

Russian oil output edged down to 11.25 million barrels per day (bpd) last month from August’s 11.29 million bpd, but remained above the cap set under the global production deal.

Under the accord reached between the Organization of the Petroleum Exporting Countries (OPEC) and allied producers, Russia has agreed to reduce output by 228,000 bpd from an October 2018 baseline.

Energy Minister Alexander Novak has said the reduction totaled 200,000 bpd last month. He reiterated that the country would strive to fulfil its obligations this month in full.

“We had specific obligations related, among other factors, to dealing with the winter period, with the production of gas condensate,” TASS news agency quoted Novak as saying.

Output of gas condensate, a light oil, is included in Russian statistics on total oil production.

OPEC, Russia and other oil producers, an alliance known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from the start of this year.

OPEC and its allies will meet on Dec. 5-6 in Vienna to review output policy.

Market participants believe the group known as OPEC+ could decide to extend production cuts “and wait until world demand catches up with the supply situation,” Andy Lipow, president of Lipow Oil Associates in Houston said last week.

OPEC Secretary-General Mohammad Barkindo has said deeper output cuts are an option and that OPEC would do what it could with allied producers to sustain oil market stability beyond 2020.

OPEC, Russia and other producers have agreed to cut oil output by 1.2 million barrels per day until March 2020.