Oil rides market-rebound wave
Brent climbs on the expectation that an Opec-led output cut will stabilise the market
Singapore — Oil prices climbed by more than 1% on Wednesday amid a broad stock market rebound and on the expectation that an Opec-led output cut for 2019 would stabilise the supply-demand balance.
Disruptions to Libyan oil exports after local militia seized the country’s biggest oil field, El Sharara, were also buoying prices, traders said.
International Brent crude oil futures were at $60.92 a barrel at 4.54am GMT, up 72c, or 1.2%, from their last close.
US West Texas Intermediate (WTI) crude futures were at $52.29 a barrel, up 64c, or 1.2%.
The higher prices came amid an increase in Asian share markets after US President Donald Trump told Reuters that trade talks with China were taking place to defuse the trade dispute between the world’s two biggest economies.
Despite Tuesday’s more confident market, analysts warned of an economic slowdown.
“The global economy is set to cool in 2019/2020, as rising interest rates and inflation begin to limit consumption in major developed economies, and market uncertainty weakens the fundamentals in emerging markets,” the Economist Intelligence Unit (EIU) said in its latest outlook.
In oil market fundamentals, a decision by oil cartel Opec and some non-Opec producers including Russia last week to cut supply by 1.2-million barrels a day has supported prices this week.
“Opec production curbs will stabilise the market,” ANZ bank said on Wednesday.
Crude prices had lost a third of their value between early October and the announcement of the cuts. Some analysts warn, though, that the agreement may not have the effect hoped for.
Fereidun Fesharaki of energy consultancy FGE said in a note that the Opec-led cuts would likely be “insufficient to mop up the inventories in the targeted three-month period till the end of the first quarter of 2019”.
As a result, FGE said prices were “likely to hover in the $55-$60 a barrel range for Brent, with WTI sitting some $5-$10 a barrel below this given current fundamentals.”
Fawad Razaqzada, market analyst at futures brokerage Forex.com, said “additional doubts were raised after the decision to reduce output was made on Friday, when … Opec refused to specify which country would cut how much”.
Undermining the supply cuts is soaring output in the US, where crude production has hit a record 11.7-million barrels a day.
The US is set to end 2018 as the world's top oil producer, ahead of Russia and Saudi Arabia, with the US Energy Information Administration (EIA) saying on Tuesday the nation’s annualised average output would be 10.88-million barrels a day for the full year.
The 2018 output increase would be 1.53-million barrels a day, the EIA said, adding that it expected production to average an unprecedented 12.06-million barrels a day in 2019.
“US oil production growth continues relentlessly and will probably continue for the foreseeable future to offset any supply-side adjustments from the Opec-plus group,” Razaqzada said.