Oil little changed amid over-supply ‘concerns’
Sterling jumps against dollar
LONDON, Nov 16, (RTRS): Oil prices fluctuated around flat on Friday as investors weighed concerns about rising supplies next year and signs of progress towards ending the US-Chinese trade row.
White House economic adviser Larry Kudlow said on Thursday a deal was “getting close”, citing what he described as very constructive discussions with Beijing.
Benchmark Brent crude was down 2 cents at $62.26 a barrel by 1352 GMT, while West Texas Intermediate crude rose 13 cents to $56.90 a barrel.
“We’re in a very technical market that is around the 200-day moving average for the last sessions. There’s a battle between the big players at the moment on direction,” Olivier Jakob of Petromatrix consultancy said.
The International Energy Agency weighed on prices, by saying the Organization of the Petroleum Exporting Countries and its allies, a grouping known as OPEC+, faced “a major challenge in 2020 as demand for their crude is expected to fall sharply.”
OPEC Secretary-General Mohammad Barkindo had painted a more upbeat picture this week, saying growth in rival US production would slow in 2020, although a report by the group had also said demand for OPEC oil was expected to dip.
OPEC and its allies have cut supply to prop up prices and are expected to discuss output policy at a meeting on Dec 5-6 in Vienna. Their existing production deal runs until March.
“Will they maintain cuts or go deeper? If OPEC doesn’t budge, we’ll see a significant stock build in the first half,” said Harry Tchilinguirian, global head of markets strategy at BNP Paribas.
He said it was still not clear how long it would take for any deal to end the US-China trade row, which has weighed on the global economy and undermined demand for fuel.
“Essentially we’ve had a range bound market for the last nine sessions due to the lack of clarity on these two key issues,” Tchilinguirian said.
OPEC said demand for its crude would average 29.58 million barrels per day (bpd) next year, 1.12 million bpd less than in 2019, pointing to a 2020 surplus of about 70,000 bpd.
US production has continued climbing, reaching a weekly record of 12.8 million bpd last week, while US oil inventories rose faster than expected last week.
However, rising US output and competition from production in Brazil, Norway and Guyana next year has been squeezing profits for US shale producers, which plan another spending freeze in 2020 and a slowdown in production growth.
Meanwhile, sterling rose to a 10-day high against the US dollar on Friday as Brexit Party candidates stood down from over 40 seats not held by the Conservative Party, which traders saw as a move that would help the Conservatives gain a majority in the upcoming UK elections.
The pound has been rising in the past week as polls suggested Prime Minister Boris Johnson’s Conservative party could win a majority at the Dec12 election, which is seen as increasing the chances of the UK leaving the European Union with a deal on Jan 31.
The Brexit party has stood down from 43 non-Conservative seats, 11 of which are held by the main opposition Labour Party and 17 of which saw the Conservative Party finish in second place in the 2017, according to a Telegraph reporter.
Sterling rose 0.2% to $1.2919 and was on track for gains of around 1% since last Friday.
“It’s a combination of dollar weakness and the political backdrop playing out,” said CIBC Capital Markets head of G10 FX strategy Jeremy Stretch.
A poll conducted after the Brexit Party said it would not stand in Conservative-held seats earlier this week put the Conservatives at 43%, up 3 points from a poll last week. Labour was unchanged at 30%.
Versus the euro, the pound was little changed at 85.59 pence. It had reaching six-month highs in late London trading on Thursday after two Brexit Party leaders announced they were not going to run.
Johnson repeated his intention to “get Brexit done” on Friday, saying the UK needs to come out of regulatory alignment with the EU and that it has “bags of time” to negotiate a free-trade deal.
Meanwhile, Labour said it would nationalise parts of telecoms provider BT’s network if it won power in the Dec 12 election to provide free full-fibre broadband for all. BT shares fell to the bottom of the FTSE 100 index.
“At present, sterling benefits from anything that lowers Labour’s chances of winning the election,” Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann, wrote in a client note.
But election news may be distracting from broader market pessimism about sterling’s long-term outlook. The UK will have just 11 months to negotiate a trade deal with the EU next year before a transition period comes to an end.
Data this week has also been weak, with UK retail sales falling unexpectedly in October.
“My concern is – and this is something possibly the market has thought about – that we’ve got preoccupied with the election but there is still a lot of uncertainty post-election,” said Neil Mellor, senior currency strategist at BNY Mellon.