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Oil Near One-Month High Amid OPEC Cuts, Economic Uncertainty


Jan 10, 2019, by Grant Smith

(Bloomberg)

Oil traded near a one-month high after entering a bull market, while the tension between an uncertain economic outlook and efforts by OPEC to restrict supplies continued to cause volatile trading.

West Texas Intermediate slipped 0.5 percent after a rally on Wednesday brought crude’s rebound from an 18-month low in December to 23 percent. Prices had climbed as Saudi Energy Minister Khalid Al-Falih expressed confidence that production curbs by the OPEC+ coalition would balance the market. Yet investors remain wary as they await concrete details of U.S.-China trade negotiations, which are clouding the economic outlook.

Oil’s eight-day gain through Wednesday marked its longest advance since mid-2017, reflecting a return of economic optimism as the U.S. and China worked on resolving their trade dispute and the Organization of Petroleum Exporting Countries began production cuts. Yet an increase in American petroleum inventories on Wednesday served as a reminder that booming U.S. shale-oil production may still leave the global market with more supply than it needs.

“The pessimism of market participants at the end of the year was excessive, and so we expected prices to rise,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “However, for a further price increase, a decisive action by OPEC is necessary.”

WTI for February delivery traded at $52.12 a barrel, down 24 cents, on the New York Mercantile Exchange as of 10:35 a.m. London time. Prices surged 5.2 percent on Wednesday to the highest since Dec. 13.

Brent for March settlement fell 16 cents to $61.28 a barrel on the ICE Futures Europe Exchange in London, and traded at an $8.81 premium to WTI for the same month. The global benchmark crude has also jumped more than 20 percent since Dec. 24, meeting the definition of a bull market.

U.S. Stockpiles

While the U.S. Energy Information Administration reported that crude inventories shrank by 1.68 million barrels last week, the steepest drop since November, there were substantial increases in supplies of refined products such as gasoline. Overall, the petroleum inventory build was a massive 13.3 million barrels, the second week in a row it gained by more than 10 million.

The risk of a surplus emerging has stirred Saudi Arabia, OPEC’s biggest producer, to try and reassure markets that the cartel and its partners are taking action.

Energy Minister Al-Falih said in Riyadh on Wednesday that the 1.2 million-barrel-a-day cut promised by the coalition will be more than sufficient to balance the market. He added that he “would not rule out calling for further action of some kind” if the current strategy proves inadequate.

Meanwhile, the U.S. and China wrapped up three days of mid-level trade talks on Wednesday, boosting the S&P 500 Index for a fourth day to the highest in almost a month. Negotiations were “extensive, in-depth and detailed,” and laid the foundation for the resolution of issues of mutual concern, China’s Ministry of Commerce said in a statement. The U.S. said it wants any deal to include “ongoing verification and effective enforcement.”

Also on Wednesday, minutes of the Federal Reserve’s December meeting showed policy makers were attentive to recent financial-market volatility and risks to the outlook. Growing investor optimism helped overshadow a government report showing a steep inventory jump for U.S. gasoline and diesel, a bearish signal for future crude demand.

Other oil-market news: The  Bloomberg Dollar Spot Index dropped to the lowest level in more than three months on Wednesday, increasing the appeal of commodities denominated in the U.S. currency. Norway’s oil and gas regulator  reduced its forecast for production this year, as crude output is set to be lower than previously expected. Alberta’s government maintained its mandated oil curtailment in February at the same level as January even as Canadian heavy-oil prices surged.



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