Oil up on OPEC output cuts expectations

Oil outlook fragile after weakest patch since 2008: IEA

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SEOUL/ LONDON/ NEW YORK

Oil prices rose on Friday, supported by expectations of more production cuts by OPEC amid fears the US-China trade row could lead to a global slowdown, curbing demand for crude. International benchmark Brent crude futures, were at $57.61 a barrel by 0009 GMT, up 23 cents, or 0.4%, from their previous settlement.

US West Texas Intermediate (WTI) futures were at $52.79 per barrel, up 25 cents, or 0.5%, from their last close. Both contracts jumped more than 2% on Thursday to recover from January lows, buoyed by reports that Saudi Arabia, the world’s biggest oil exporter, had called other producers to discuss the recent slide in crude prices. Oil prices have still lost more than 20% from their peaks reached in April, putting them in bear territory.

Global financial markets were rocked over the past week after US President Donald Trump said he would impose 10% tariffs on Chinese goods starting September and a fall in the Chinese yuan sparked fears of a currency war. China’s yuan strengthened against the dollar on Thursday, on the back of strong export growth in July.

Saudi Arabia, de facto leader of the Organization of Petroleum Exporting Countries (OPEC), planned to maintain its crude oil exports below 7 million barrels per day in August and September to bring the market back to balance and help absorb global oil inventories, a Saudi oil official said on Wednesday.

The outlook for global oil demand is fragile amid growing signs of an economic slowdown, which squeezed consumption growth during the first five months of this year to the weakest in a decade, the International Energy Agency said. The IEA, which advises major economies, trimmed forecasts for oil-demand growth this year and next, and warned that it may lower the estimates further as the US-China trade conflict drags on. World consumption increased by just 520,000 barrels a day from January through May about half the rate seen the previous year, and the slowest for the period since 2008, the agency said.

The situation is becoming even more uncertain: the US-China trade dispute remains unresolved and in September new tariffs are due to be imposed, the Paris-based agency said in its monthly report. The outlook is fragile with a greater likelihood of a downward revision than an upward one.

Brent crude futures slumped into a bear market this week as tensions between Washington and Beijing escalated, and was trading near $57 a barrel in London on Friday. In response, Saudi Arabia, the world’s biggest oil exporter, signalled that the kingdom and fellow nations within Opec will keep production restrained.

The IEA trimmed its estimates for global oil demand growth in 2019 by 100,000 barrels a day to 1.1 million a day, implying a growth rate of about 1.1 per cent. The outlook for 2020 was lowered by 50,000 barrels a day to 1.3 million a day, or a rate of 1.3 per cent. In the first half of the year, the only significant growth in demand was seen in China, the world’s second-biggest oil user, the IEA said.

Nonetheless, despite the downward economic pressures the agency still anticipates that demand will surge in the second half of the year, tightening markets sharply. Consumption will expand by 1.6 million barrels a day in the second half, almost three times the rate seen in the first.

Markets have tightened recently amid production cuts by the Organisation of Petroleum Exporting Countries and its partners, who collectively pump about half of the world’s supply.

 

OPEC’s crude output fell 190,000 barrels a day to 29.71 million a day in July, remaining at the lowest in five years, the IEA said. That’s about 940,000 a day less than will be needed in the third quarter, and so should cause world oil stockpiles to contract, it predicted.

The group’s biggest member, Saudi Arabia, signalled this week that it may be prepared to do even more. The kingdom has contacted other producers in the coalition to discuss further options to contain oil’s slide, according to an official who declined to be identified.

The IEA report indicates that next year Riyadh and its allies may indeed need to cut output further to keep supply and demand in balance. Oil markets face a renewed surplus in 2020 amid growing production from OPEC’s rivals, most notably US shale drillers. The agency expects non-Opec supply will surge by 1.9 million barrels a day this year and then an additional 2.2 million barrels a day in 2020. Under our current assumptions, in 2020 the oil market will be well-supplied, the agency said.

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