Oil falls amid economic slowdown; supply cut consensus offers support

Oil futures are around 20 percent below 2019 peaks reached in late April. (Reuters)
Updated 04 June 2019

Oil falls amid economic slowdown; supply cut consensus offers support

  • Oil futures are around 20 percent below 2019 peaks reached in late April
  • ‘The prolonged trade war has sparked fears of a global economic slowdown as well as weaker oil demand’

SINGAPORE: Oil prices fell on Tuesday as an economic slowdown starts to dent energy demand, but markets won some support after Saudi Arabia said a consensus was emerging with other producers about extending supply cuts.
Front-month Brent crude futures were at $60.90 at 0614 GMT. That was 38 cents, or 0.6 percent, below last session’s close.
US West Texas Intermediate crude futures were at $52.98 per barrel, down 27 cents, or 0.5 percent, from their last settlement.
Oil futures are around 20 percent below 2019 peaks reached in late April, with May posting the sharpest monthly declines since November.
Other energy prices, like coal and gas, are also being hit hard by the downturn.
That has come as financial traders sell out of energy markets amid growing concerns about the outlook for the world economy amid the trade war between the United States and China.
“The prolonged trade war has sparked fears of a global economic slowdown as well as weaker oil demand,” tanker brokerage Eastport said on Tuesday.
To prevent oversupply and prop up the market, the Middle East dominated producer club of the Organization of the Petroleum Exporting Countries (OPEC), together with some allies including Russia, has been withholding supply since the start of the year to prop up the market.
The group plans to decide later this month or in early July whether to continue withholding supply.
Saudi Energy Minister Khalid Al-Falih said on Monday that a consensus was emerging among producers to continue working “to sustain market stability” in the second-half of the year.
Producers are concerned that the economic slowdown will reduce fuel consumption.
“Slowing economic activity now threatens to derail our base case of robust cyclical (oil) demand growth,” Bank of America Merrill Lynch said in a note.
South Korea’s economy shrank by 0.4 percent in the first quarter while core inflation slowed to a near 20-year low in May, data showed on Tuesday, pointing to a further economic slowdown in Asia.
“The continued escalation in trade tensions and broad-based fall in manufacturing ... suggest that the downside risks to growth are becoming more prominent,” US bank Morgan Stanley said.
Further pressuring oil prices and undermining OPEC’s efforts to tighten the market has been surging US output, which has made America the world’s biggest crude producer, at 12.3 million barrels per day (bpd) at the end of May, versus 11.11 million bpd produced in Russia and 9.65 million bpd pumped out of the ground in Saudi Arabia.
With US production surging, more of its oil is being exported, with a record of six super-tankers scheduled for loading at the Louisiana Offshore Oil Port between late May and early June.


Oil prices surge after attacks hit Saudi output

Updated 16 September 2019

Oil prices surge after attacks hit Saudi output

  • The Houthi attacks hit two Aramco sites and effectively shut down six percent of the global oil supply
  • President Donald Trump said Sunday the US was ‘locked and loaded’ to respond to the attacks

HONG KONG: Oil prices saw a record surge Monday after attacks on two Saudi facilities slashed output in the world’s top producer by half, fueling fresh geopolitical fears as Donald Trump blamed Iran and raised the possibility of a military strike on the country.
Brent futures surged $12 in the first few minutes of business — the most in dollar terms since they were launched in 1988 and representing a jump of nearly 20 percent — while WTI jumped more than $8, or 15 percent.
Both contracts pared the gains but were both still more than 10 percent up.
The attack by Tehran-backed Houthi militia in neighboring Yemen, where a Saudi-led coalition is bogged down in a five-year war, hit two sites owned by state-run giant Aramco and effectively shut down six percent of the global oil supply.
Trump said Sunday the US was “locked and loaded” to respond to the attack, while Secretary of State Mike Pompeo said: “The United States will work with our partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression.”
Tehran denies the accusations but the news revived fears of a conflict in the tinderbox Middle East after a series of attacks on oil tankers earlier this year that were also blamed on Iran.
“Tensions in the Middle East are rising quickly, meaning this story will continue to reverberate this week even after the knee-jerk panic in oil markets this morning,” said Jeffrey Halley, senior market analyst at OANDA.
Trump authorized the release of US supplies from its Strategic Petroleum Reserve, while Aramco said more than half of the five million barrels of production lost will be restored by tomorrow.
But the strikes raise concerns about the security of supplies from the world’s biggest producer.
Oil prices had dropped last week after news that Trump had fired his anti-Iran hawkish national security adviser John Bolton, which was seen as paving the way for an easing of tensions in the region.
“One thing we can say with confidence is that if part of the reason for last week’s fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton’s sacking ... and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid,” said Ray Attrill at National Australia Bank.