Thursday, 17 January, 2019

Oil price rises as Saudi Arabia cuts output

Oil prices reverse course and trade sharply higher Oil prices surge 5%
Orlando Vargas | 06 January, 2019, 07:53

The majority of US oil executives surveyed by the Dallas Fed are still planning to boost spending in the next year, even after the plunge in prices.

On London-based ICE Futures, the price of Brent crude oil to be delivered in March advanced by $0.93, to $55.08 a barrel.

The US surpassed Russian Federation and Saudi Arabia earlier in 2018 to become the largest crude oil producer in the world based on monthly data, according to the EIA.

Traders pointed to signs that Saudi Arabia is beginning to make good on vows to cut output.

OPEC, Russia and other non-members agreed in December to reduce supply by 1.2 million barrels per day (bpd) in 2019.

Vessels last month carried about 534,000 bpd from Saudi Arabia to the United States, down from 632,000 bpd in November.

Aside from the stock market and global macro risks, analysts believe that shale, the main component of US oil production, will remain the dark horse of the oil market in 2019. Saudi Arabia also moved to increase prices in the USA and Asia, a signal that the world's biggest exporter thinks demand will be sustained.

"The official selling prices (OSPs) for Arab Medium and Arab Heavy crude grades are expected to fall by up to 50 cents a barrel in February from the previous month".

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But the OPEC cuts may matter less if China, and by extension the world, is on the cusp of a recession, analysts say. “Anybody who thinks that the Saudis are not serious about reducing the perception of a supply glut had better think again, ” said Flynn. As oil futures settled Wednesday afternoon, those benchmark indexes were trading mixed, following earlier losses.

USA crude output rose to an all-time high of 11.537 million barrels per day (bpd) in October, the Energy Information Administration (EIA) said on Monday. "The current bearish bias will, therefore, continue in the near term and it stands to reason that oil will struggle to break out from its current trough".

Despite some demand-side worries, oil has received support as supply cuts announced by the global coalition of producers known as OPEC+ kick in.

Oil fell in early trading, fueled by concerns about the global economy and its potential impact on demand for crude.

China issued its first batch of crude import quotas for 2019 yesterday at a lower volume than for the same batch a year ago, though expectations are for the volumes to climb later this year.

Independent market analyst Greg McKenna said in a note on Wednesday that it was "difficult for traders and investors to ignore what looks like a genuine global economic slowdown".

"The global supply surplus is not resolved, and would likely reemerge if OPEC+ let up on its production cuts", noted the International Energy Agency (IEA). While OPEC's output plunged by the most in nearly two years last month and producers have pledged to curb supplies through the first half of 2019, concerns about oversupply prevail as stockpiles at America's main storage hub show signs of swelling.

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