OPEC Cuts, Stable Equity Markets Push Oil Price to $58

Andrew Cummings
January 9, 2019

Brent for March settlement gained 97 U.S. cents to US$58.30 a barrel on the ICE Futures Europe Exchange in London. The U.S. administration on January 7 expressed optimism it can reach a "reasonable" trade deal, and Trump has given Trade Representative Robert Lighthizer until March 1 to negotiate an accord.

Global benchmark Brent crude was trading at $58.68 a barrel at around 12 p.m. London time (7 a.m ET), down around 1.4 percent, while West Texas Intermediate (WTI) stood at $50.52, more than 1.7 percent lower. On Friday, crude oil futures ended up $0.87, or 1.9%, at $47.96 a barrel, extending gains to a fifth successive session.

West Texas Intermediate for February delivery increased as much as 77 cents to $49.29 a barrel on the New York Mercantile Exchange, and traded at that level at 10:55 a.m.in London. "Momentum is coming back into the market from very depressed price levels", Petromatrix strategist Olivier Jakob said, according to Reuters.

"Although growth uncertainty will likely require strengthening physical oil markets to drive this rally, with encouraging evidence that the OPEC cuts are starting", the bank added.

OPEC, led by Saudi Arabia, alongside other producers led by Russian Federation, agreed a year ago to rein in supplies starting from January after oil tumbled from above $86 on worries about surging output.

"The dynamics of oil prices in 2019 will also depend in large part on Opec's effectiveness in implementing the cuts, balancing the market and reinforcing the credibility of its signals", said the report. Record high crude oil production C-OUT-T-EIA has pushed up US inventories. Shares have risen on expectations that trade talks this week between the United States and China will ease a trade dispute.

Futures are rebounding as the Organisation of the Petroleum Exporting Countries (Opec) and its allies start their pledged production cuts this month, led by Saudi Arabia, and after the US Federal Reserve signalled a hold in interest rate hikes that had spurred risk aversion and volatility across global financial markets.

Data released by the Energy Information Administration on Friday showed crude inventories in the USA rose by 7,000 barrels in the week to December 28, beating expectations for a drop of more than 3 million barrels.

A trade agreement could mitigate the global economic slowdown and keep global oil demand high; however, failure to reach a deal would worsen economic growth prospects and keep a downward pressure on oil demand and prices, according to experts.

Goldman Sachs said in a note on Monday that it had downgraded its average Brent crude oil forecast for 2019 to $62.50 a barrel from $70 due to "the strongest macro headwinds since 2015".

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