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Oil Set for Longest Gain in 17 Months on U.S. Economy, OPEC Cuts


Jan 7, 2019, by Sharon Cho and Grant Smith
(Bloomberg)

Oil headed for its longest stretch of daily increases in more than 17 months as the U.S. Federal Reserve sought to soothe investor concerns, China moved to stimulate its economy and OPEC production cutbacks took effect.

Futures in New York rose as much as 3.2 percent after a fifth consecutive gain on Friday, when they settled at the highest closing level in two weeks. Crude is rising with other risk assets after Fed Chairman Jerome Powell said the central bank could pause interest-rate increases if the U.S. economy weakens. Data last week showed OPEC is following through on pledges to cut output.

Crude recovered slightly this month after posting its first annual loss since 2015. While Goldman Sachs Group Inc. cut its oil price forecasts for 2019, citing a re-emerging glut and resilient American shale output, the bank said a 42 percent drop toward the end of last year was excessive. Volatility persists as the U.S. and China try to negotiate an end to a trade war that risks hurting economic growth and OPEC and its allies pursue supply curbs.

“It could be that prices reached a turning point at the end of last year,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “Now I expect price support as the production cuts agreed by OPEC come into force, as oil demand remains healthy, and as we face a number of supply disruptions in fragile OPEC states. The market might be tighter in the first quarter than the market previously expected.”

West Texas Intermediate for February delivery rose as much as $1.51 to $49.47 a barrel on the New York Mercantile Exchange, and traded $1.36 higher at $49.32 a barrel at 10:54 a.m. in London. Prices increased 5.8 percent last week, the most since June 29.

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Brent for March settlement increased 3 percent, or $1.61, to $58.61 a barrel on the ICE Futures Europe Exchange in London. Futures surged 9.3 percent last week, the biggest jump since December 2016. The global benchmark crude traded at a $9.05 premium to WTI for the same month.

In OPEC member Gabon, military officers seized the state broadcaster in what appeared to be a coup against ailing President Ali Bongo. Young army officers felt that a speech by Bongo from Morocco on Dec. 31 failed to assure them of his capacity to govern, according to Lieutenant Ondo Obiang Kelly. The soldiers have been arrested, Radio France Internationale reported, citing a government spokesman.

Fed Chairman Powell said he’s “listening sensitively to the message that markets are sending” about downside risks, invoking events of 2016, when rates were kept unchanged throughout most of the year on concerns of slowing growth in China. The prospect of a hold in U.S. interest-rate hikes weakened the dollar, which is typically positive for commodities such as oil that are denominated in the greenback.

“The statement from the Fed chair was in the direction of what the market bulls have wanted,” Kim Kwangrae, a commodities analyst at Samsung Futures Inc., said by phone from Seoul. “At the same time, there’s increased expectation that OPEC+ will cut its production from this month. The drop in the U.S. rig count is also seen as a bullish factor.”

A further step by China’s central bank late Friday to secure liquidity to the slowing economy also helped assuage some investor concerns. American and Chinese officials will begin negotiations on Monday in the hope of reaching a deal during a 90-day truce in the trade war between the administrations of President Donald Trump and counterpart Xi Jinping.

Working oil rigs in the U.S. fell for the first time in three weeks, by 8 to 877, according to data released Friday by oilfield-services provider Baker Hughes. That’s the biggest drop since the week ended Dec. 7.

Other oil-market news: Libya produced 1.1 million barrels a day of oil last year, the highest in five years and plans to  pump 2.1 million barrels a day by 2022, the country’s National Oil Corp. Chairman Mustafa Sanalla told reporters. Any potential disruption to Gabon’s oil output, following a military coup attempt, would only have an impact on  a small share of OPEC’s total output because the country produces so little. South Korea’s Hanwha Total Petrochemical Co. is  said to plan buying about 4 million barrels per month of Iranian condensate in February-April, following the granting of a U.S. waiver from restrictions on purchases.



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