Picture: REUTERS
Picture: REUTERS

Singapore — Brent crude oil prices climbed on Monday after producer club Opec and some non-affiliated suppliers last Friday agreed a supply cut of 1.2-million barrels a day from January.

Despite this, the outlook for next year remains muted on the back of an economic slowdown.

International Brent crude oil futures were at $61.96 a barrel at 4.51am GMT, up 29c, or 0.5%, from their last close.

Prices surged on Friday after Opec and some non-Opec producers including heavyweight Russia announced they would cut oil supply by 1.2-million barrels a day, with an 800,000 barrel a day (bbl/day) reduction planned by Opec-members and 400,000bbl/day by countries not affiliated with the group.

US West Texas Intermediate (WTI) crude futures were weaker, however, dropping 11c from their last settlement to $52.50 a barrel, weighed by surging US output as the booming American oil industry is not taking part in the announced cuts.

The Opec-led supply curbs will be made from January, measured against October 2018 output levels.

“Our key conclusion is that oil prices will be well supported around the $70 a barrel level for 2019,” analysts at Bernstein Energy said on Monday.

Despite the cuts, that was still a price forecast reduction of $6 a barrel as Bernstein reduced its crude oil demand forecast from 1.5-million barrels a day previously to 1.3-million barrels a day for 2019.

US bank Morgan Stanley said the cut was “likely to be sufficient to balance the market in the first half of 2019 and prevent inventories from building”.

It added that it expected “Brent to reach $67.5 a barrel by the second quarter of 2019, down from $77.5 before”.

Not all analysts expect the cuts to be sufficient to end oversupply.

Edward Bell, commodity analyst at Emirates NBD bank, said in a note on Sunday that “the scale of the cuts … isn’t enough to push the market back into deficit” and that he expected “a market surplus of around 1.2-million barrels a day in the first quarter with the new production levels”.

Oil prices have been pulled down sharply since October by signs of an economic slowdown, with Brent losing almost 30% in value.

Japan, the world’s third-biggest economy and number four oil consumer, on Monday revised its third-quarter GDP growth down to an annualised rate of -2.5%, down from the initial estimate of -1.2%.

Meanwhile the two world’s biggest economies, the US and China, are locked in a trade war which is threatening to slow global growth and battering investor sentiment.

Despite the expectations of a slowdown, physical demand on the ground remains healthy.

China, the world’s biggest oil importer, at the weekend reported an annualised 8.5% jump in November crude imports, to 10.43-million barrels a day, marking the first time China imported more than 10-million barrels a day. That leaves the world’s second-biggest economy on track to set yet another annual import record.

Strong demand is being driven by Chinese purchases for strategic reserves, but also by new refineries, triggering excess supply of fuels, filling up storage tanks and eroding refinery profits across Asia.