Oil stable as demand concern counters ME tensions

US output gains to outpace global demand growth

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LONDON/ NEW YORK/ VIENNA

Oil prices steadied on Monday as tensions over Iran’s nuclear programme were tempered by global economic growth concerns and consequently oil demand. Brent crude futures were down $0.01 at $64.22 a barrel by 1122 GMT. US West Texas Intermediate (WTI) was down $0.02 at $57.49. Iran threatened on Monday to restart deactivated centrifuges and step up its enrichment of uranium to 20% in a move that further threatens the 2015 nuclear agreement that Washington abandoned last year.

Washington has imposed sanctions that eliminate benefits Iran was meant to receive in return for agreeing to curbs on its nuclear programme under the 2015 deal with world powers. The confrontation has brought the United States and Iran close to the brink of conflict, with US President Donald Trump calling off air strikes last month minutes before impact.

On Sunday, Trump issued another warning over Iran’s nuclear activities. They’d better be careful, he said. However, oil prices continue to be pressured by lingering fears over demand. That the market reacts so little to the tense situation in the Middle East is a reflection of a very well-supplied market in general and a very relaxed market, said SEB Chief Commodities Analyst Bjarne Schieldrop. The US-China trade war has dampened prospects for global economic growth and oil demand.

However, lack of concrete progress in resolving the acrimonious trade war between the United States and China means the bar could be very high for the US Federal Reserve not to lower borrowing costs at its July 30-31 policy meeting. Elsewhere, Japan’s core machinery orders fell for the first time in four months in May, posting the biggest monthly drop in eight months in a worrying sign that global trade tensions are taking a toll on corporate investment. Concern for global growth is at the back of the mind of the whole market all the time these days, SEB’s Schieldrop said.

Goldman Sachs said growth in US shale production is likely to outpace that of global demand at least through 2020 and limit gains in oil prices despite output curbs led by the Organization of the Petroleum Exporting Countries. The Wall Street bank forecast US oil output growth at 1.3 million barrels per day (bpd) and 1.2 million bpd in 2019 and 2020 respectively, compared with its global demand growth expectations of 0.8 million bpd and 1.6 million bpd respectively for the same periods.

Opec’s willingness to continue to cede market share (is) likely to limit downside as well, the bank said. It kept its 2020 price outlook of about $60 (Dh220) per barrel for Brent and $55.50 for WTI unchanged.

Opec and its allies led by Russia agreed to extend oil output cuts until March 2020 last week. An exit strategy from the cuts was not discussed, and it remains to be seen whether the decision to extend cuts to accommodate shale growth will ultimately drive the need for deeper cuts in 2020,” Goldman Sachs Equity Research said in a note on Sunday.

Brent crude futures were up 8 cents at $64.31, while US West Texas Intermediate (WTI) was up 6 cents at $57.57 a barrel, supported by last week’s strong US jobs data and geopolitical risks, but worries that a slower global economy will curb appetite for oil kept a lid on prices.

On the other hand, the Organization of the Petroleum Exporting Countries (OPEC) on Monday called for a quick resolution of the conflicts following the US sanctions on Venezuela and Iran two founding members of the organization. The affected countries would remain exempted from the implementation of the oil supply adjustment of 1.2 million barrels a day owing to their situation, Mohammad Barkindo, the secretary general of OPEC told reporters in Vienna, according to a Nigerian daily, This Day.

The decision is taken due to the situation confronting Venezuela and Iran and the effects of the sanctions and how it will affect their production, Barkindo said. He added that Libya will remain exempted together with these two countries. For us we will welcome a resolution of the issues that are at stake between these countries and the US sanctions distort markets and further complicate our efforts with non-OPEC members to maintain stability, Barkindo said.

He stressed those geopolitical tensions are inimical to stability across the world and the organization is looking forward to world leaders to continue to do their best to ensure that conflicts on trade and military are avoided. The world needs peace and stability to ensure growth and development, he added.

 

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