Oil fell yesterday in line with further declines in global stock markets, giving back some of the gains made last week when the producer group, the Organisation of Petroleum Exporting Countries (OPEC) and other key exporters agreed to cut their crude output.
International Brent crude oil futures fell 54 cents, or nearly one per cent, to $61.13 a barrel, while U.S. West Texas Intermediate crude lost 81 cents, or 1.5 per cent, to trade at $51.80 a barrel.
Prices rose three per cent on Friday after OPEC and some non-OPEC producers including heavyweight Russia said they would cut oil supply by 1.2 million barrels per day.
“They had one thing in common — none of them wanted to see inventories rise further. They could disagree on prices and upon the size of the cuts, but to really see inventories moving higher? No one wanted that,” SEB commodities strategist Bjarne Schieldrop said.
“Firstly, we’ll get some (price) stability, even if oil is weighed down by bearish equities. That really took the glow off oil,” he said.
OPEC has agreed to cut by 800,000 bpd, led mainly by Saudi Arabia, while non-members will cut by 400,000 bpd, with most of that decrease shouldered by Russia. The OPEC-led supply curbs will be made from January, measured against October 2018 output levels.
The shutdown of the 315,000-bpd El Sharara oilfield in Libya earlier helped push up Brent, traders said.
Global equities have fallen by nearly 8 per cent so far this year, battered by concern about slowing corporate earnings and the threat to the broader economy from an escalating trade dispute between the United States and China.
A steep increase in the pace of crude supply growth this year, especially in the world’s three largest producers — the United States, Saudi Arabia and Russia — has made a number of analysts wary about the prospect of demand being sufficient to mop up extra oil.
“The surge in U.S. supply in recent months should be a reason for caution,” Bank of America Merrill Lynch said in a note on Monday.
U.S. bank Morgan Stanley said the cut was “likely sufficient to balance the market in 1H19 and prevent inventories from building.”
Not all analysts were so confident.
Edward Bell of Emirates NBD bank said “the scale of the cuts … isn’t enough to push the market back into deficit” and that he expected “a market surplus of around 1.2 million bpd in Q1 with the new production levels.”
Oil prices have fallen sharply since October on signs of an economic slowdown, with Brent losing almost 30 percent in value.
Japan, the world’s No.4 oil consumer, on Monday revised its third quarter GDP growth down to an annualised rate of minus 2.5 percent, down from the initial estimate of minus 1.2 percent.
Meanwhile, the two world’s biggest economies — the United States and China — are locked in a trade war which is threatening to slow global growth and battering investor sentiment.
Despite the expectations of a slowdown, demand on the ground remains healthy.
China, the world’s biggest oil importer, over the weekend reported November crude imports rose 8.5 percent from a year ago, to 10.43 million bpd, marking the first time China imported more than 10 million bpd. That leaves the world’s second-biggest economy on track to set yet another annual import record.
Demand is driven by Chinese purchases for strategic reserves, but also by new refineries, triggering excess supply of fuels, filling up storage tanks and eroding refinery profits across Asia.
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