Crude prices ‘climb’, head for weekly loss

Sterling shakes off CB scare

LONDON, Feb 9, (RTRS): Benchmark oil prices inched up on Friday but were heading for a weekly loss, pulled down by worries about a global economic slowdown, although OPEC-led supply cuts and US sanctions against Venezuela provided crude with some support.

Weighing on financial markets were concerns that a trade dispute between the United States and China would remain unresolved, denting global economic prospects.

International Brent crude futures had erased earlier losses by 1422 GMT, gaining 59 cents to $62.22 per barrel. On the week, they were set for a loss of around 0.8 percent.

US West Texas Intermediate crude futures also turned from red to black at $52.89 per barrel, up 25 cents and looking at a 4.2 percent weekly slump, their steepest this year. US President Donald Trump said on Thursday that he did not plan to meet Chinese President Xi Jinping before a March 1 deadline set by the two countries to strike a trade deal.

Adding to demand concerns, the European Commission sharply cut its forecasts for euro zone economic growth due to global trade tensions and an array of domestic challenges.

Another factor weighing on oil prices this week was a strong dollar.

Supply cuts led by the Organization of the Petroleum Exporting Countries lent support. OPEC kingpin Saudi Arabia reduced its output in January by about 400,000 barrels per day (bpd) to 10.24 million bpd, OPEC sources said.

Risk

Another risk to supply comes from Venezuela after the implementation of US sanctions against the OPEC member’s petroleum industry in late January. Analysts expect this move to knock out 300,000-500,000 bpd of exports.

For the time being, though, the sanctions impact on international oil markets has been limited.

Libya’s National Oil Corp said on Friday that its largest oilfield, out of action since December, would remain offline until security had been restored.

“The oil demand side of the coin is facing a number of headwinds ... Venezuela’s oil woes are largely priced in and there is no guarantee that the OPEC+ supply pact will be extended,” PVM analysts wrote.

“This is hardly a recipe for a sustained bout of upward buying pressures. There is, however, one potential lifeline for those of a bullish disposition. The rumour mill is in full swing that the Trump administration will not renew waivers to sanctions against buying Iranian oil.”

Meanwhile, Sterling advanced on Thursday in a volatile trading session after the Bank of England said Britain faced its weakest economic growth in a decade due to uncertainty about Brexit.

Having fallen more than half a percent immediately after Bank cut its growth forecast and left interest rates unchanged, the pound subsequently recouped its losses and strengthened on hopes that Britain will make some progress in coming days in negotiations on its departure from the European Union.

The speed at which the British currency retraced its losses suggested investors are focused more on Brexit talks than on the economic outlook.

Raising

At a time when other major central banks have said they will hold off from raising borrowing costs, the BoE stuck to its message that interest rates will rise if an EU divorce deal is done.

But what underpinned the British currency, according to some market analysts, was the promise of more stimulus measures in case Britain fails to pull together a deal by March 29.

“The BoE was pretty balanced and pointed to robustness in the labour market ... the message was that, when Brexit is resolved, the economy will be lifted and that caught some people off guard ...” said Nomura strategist Jordan Rochester. The pound rose a third of a percent to $1.2969, after dropping as low on the day as $1.2854, a two-week low. It carved out a wide daily trading range of more than 1 percent.

Against the euro, it strengthened 0.4 percent to 87.57 pence.

“Sterling markets are broadly pricing in the short-term Brexit uncertainty,” said Viraj Patel, a currency strategist at Arkera, a financial technology firm. “All eyes are on Westminster and Brussels.”

Money markets were pricing in about a 41 percent probability of another quarter point rate hike before the end of the year compared to a 50 percent probability before the rate decision.

“Assuming an amicable outcome to the Brexit negotiations, there are enough hawkish signals in the inflation report to conclude that the BoE could hike rates later this year, which should support the currency,” Dean Turner, UK economist at UBS Wealth Management said.

The pound was especially volatile after the rate decision, briefly falling below a 100-day moving average of $1.2896 before bouncing off an intraday low of $1.2854.

Two-week to one-month risk reversals on the pound, a ratio of calls to puts, showed an increased bias towards selling as the scheduled March 29 exit from the EU nears.