US stockpile decline may boost oil prices
MARKETS CLOSED AT A MONTHLY HIGH ON FRIDAY
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Adrop in US oil inventories will provide oil prices with a shortterm boost, though market factors on demand and oversupply will remain an issue in the longer term, analysts said.
The US Energy Information Administration (EIA) last week reported that US oil inventories were down by 1.7 million barrels compared to the previous week. The drawdown saw oil prices closing on a monthly high, with Brent trading at $62.02 and West Texas Intermediate (WTI) on $56.66.
“The market has found support from a surprise drop in US crude stocks and expectations for a robust refinery activity to meet increased shipping demand for low sulphur fuel before IMO20 regulations begins next year,” said Ole S. Hanson, head of commodity strategy, Saxo Bank.
“While the short-term outlook has improved, the 2020 outlook remains challenging with the International Energy Agency looking for non-Opec supply to exceed demand, thereby putting pressure on the Opec+ group to cut even deeper,”
Oil could be further boosted on the news of a possible US-China phase one-trade deal. On Friday, The US Trade Representative’s office in a statement said that both sides were close to finalising a deal.
The trade dispute between the world’s two largest economies has seen tit-fortat tariffs worth billions placed on imported products from both countries, downgrading world economic forecasts as a result of the trade war and dampening oil demand. he added, highlighting the challenges that remain.
Reports last week said that further production cuts by Opec+ could be in the offing later this year, something Hanson said would likely need to be carried out to ensure prices don’t drop. “How to address this price suppressing gap between supply and demand in 2020 is likely to be a major market focus ahead of the Opec+ group meeting in Vienna on December 6.
“At a time of slowing global growth and with that demand
Decline in US oil inventories last week (in barrels)
Increase in UAE’s output, maintaining Opec+ pledges for oil, the group will find itself in a position of having to cut deeper or let the price drop further in order to force an accelerated slowdown in US production growth,” he added.
“We maintain the view from our fourth quarter outlook that Brent crude oil is likely to remain range bound around $60 [per barrel] ahead of the yearend,” Hanson said.
UAE oil production
In its quarterly Mena report released yesterday, Emirates NBD reported a 2.8 per cent increase in the UAE’s production while also keeping to its Opec+ production cut.
“The UAE’s crude oil output has been steady around 3.07 million bpd for most of this year, which is nearly 3 per cent more than the average production in 2018. The positive contribution of the oil sector to GDP growth in the UAE is in stark contrast to most of the other GCC countries, where production has declined this year,” the report added.
“Overall, we remain comfortable with our 2.0 per cent real GDP growth forecast for the UAE this year, underpinned by growth in the oil sector as well as expansion in Dubai’s largely non-oil economy,” the report said.