Oil prices edge lower, tightening supply outlook supports

Oil prices edge lower, tightening supply outlook supports

Troy Powers
February 8, 2019

"In a market that's looking for direction, there's concern that any slowdown in the manufacturing sector would slow down demand". USA crude output stayed at a record-high 11.9 million barrels a day. The market also contended with the possibility that oil producers would not adhere strictly to cuts agreed to a year ago.

OPEC, and some non-OPEC countries led by Russian Federation, had agreed to remove 1.2 million barrels of crude oil per day from the market starting January 1 to help crude prices increase.

Benchmark Brent crude had slipped 62 cents to $61.36 a barrel by 1000 GMT, after rallying about 15 percent in January.

Also dampening market sentiment still were worries about weaker global economic growth and the US-China trade dispute.

Though the United States published robust jobs data last week, global markets remain nervous after China reported the lowest annual economic growth in almost 30 years in January. Both lines carry Canadian crude to the U.S. -China talks to end the trade war between the world's top two economies.

The oil price also came under pressure as weekly data published by the U.S. Energy Information Administration on Wednesday showed an unwelcome increase in stocks of crude oil.

Yet some investors believe these concerns may be overblown, in light of the decline in OPEC production and a squeeze on supply from Iran and Venezuela from USA sanctions.

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The oil price is showing a 20 percent gain so far this year.

Supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and allies since January have been supporting prices.

The producers known as OPEC+ began cutting production by 1.2 million barrels per day from last month to avert a new supply glut and OPEC has delivered nearly three-quarters of its pledged cutback already, according to a Reuters survey.

Meanwhile, OPEC data shows that while Q4 2018 oil output was flat quarter-on-quarter, there was a sizable decline in output in December, by 750 thousand bpd month-on-month.

"We believe that financial markets may be overestimating the risks of a global recession", said Jean-Pierre Durante, Head of Applied Research at Pictet Wealth Management. Brent hit 2019 highs of $63.63 on Monday before joining WTI in a zig-zag pattern.

With fresh sanctions potentially looming, a flotilla loaded with about 7 million barrels of Venezuelan oil has formed in the Gulf of Mexico, some holding cargoes bought ahead of the latest US sanctions and others whose buyers are weighing who to pay, according to traders, shippers and Refinitiv Eikon data.