Oil prices decline on swelling oversupply, volatile markets

Gladys Abbott
January 6, 2019

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.

Brent crude, the global benchmark, was up $1.25 to $57.20 a barrel at 1113 GMT.

West Texas Intermediate for February delivery rose $1.08 cents, or 2.3 percent, to $48.17 a barrel on the New York Mercantile Exchange.

More broadly the market appears to be bifurcated in its view between a short-term bearish and longer-term bullish outlook based on oil's propensity to rise in the later stages of the business cycle - a view endorsed by Goldman Sachs.

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

Observed crude exports from Saudi Arabia declined to 7.253 million barrels a day in December, from 7.717 million in November, according to tanker-tracking data compiled by Bloomberg . Saudi Arabia shipped 534,000 barrels per day to the United States in December, a near 100,000 bpd drop from November.

More news: Five teenage girls die in escape room blaze in Poland

Important trends to watch over coming months is whether muted global output growth is reducing fuel consumption; will USA shale production maintain its incredible pace; will chronic decline in Venezuelan output continue; what will full-brown United States sanctions do to Iranian exports; and if OPEC+ partners (notably Russia) can satisfactorily enforce output discipline? The Australian currency this morning hit its lowest level against the US dollar in a decade. "And you've got OPEC cutting". On Wednesday, Russia reported that it pumped 11.16 million bpd in 2018, marking a post-Soviet-era record. Earlier this week, official data showed U.S. output reached a record in October and Iraq boosted oil exports in December.

"Oil prices ... registered their first yearly decline in three years on fears of a slowing global economy and concerns of an ongoing supply glut", said Adeel Minhas, a consultant at Australia's Rivkin Securities.

"Market expectations for continued strong oil demand growth remain in place, despite concerns about slowing demand growth as a result of weaker economic growth, the impact of tariffs and a strong U.S. dollar", remraked Steve Wood, the managing director for Oil & Gas at Moody's.

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. "China manufacturing data shows a sharp slowdown weighing on oil market demand sentiment", Amir Hekmati, oil futures spec trader at Lucid Energy, told UPI early Wednesday.

"If OPEC is faithful to its agreed output cut together with non-OPEC partners, it would take 3-4 months to mop up the excess inventories", energy consultancy FGE said. 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.

Other reports by LeisureTravelAid

Discuss This Article

FOLLOW OUR NEWSPAPER