OPEC cuts hopes, Europe inventories drop boost oil

Yen and Swiss franc gain

LONDON, Aug 10, (RTRS): Oil prices rose on Friday, supported by a drop in European inventories and expectations of more OPEC production cuts despite the International Energy Agency (IEA) reporting demand growth at its lowest since the financial crisis of 2008.

Brent crude futures were up $1.48 at $58.86 a barrel by 1355 GMT. West Texas Intermediate (WTI) futures were up $1.80 at $54.34.

“Despite a further cut in oil demand growth by the IEA, oil prices are trading marginally higher, as the demand growth cut was already announced previously by the head of the IEA and the agency still expects larger inventory draws for 2H19,” said UBS analyst Giovanni Staunovo.

The IEA said that global oil demand in the first half of 2019 grew at its slowest since 2008, hurt by mounting signs of an economic slowdown and a ramping up of the US-China trade war.

Oil prices rose after Euroilstock data showed total crude and product inventories of 16 European nations in July were slightly lower than in June.

Crude oil prices have lost more than 20% from peaks reached in April, putting them in bear territory.

Rystad Energy said the oil market was going “from gloomy to gloomier”, calling into question the consultancy’s own bullish view for the first part of 2020.

“Economic recession risk and further escalation of the US-China trade war are key concerns in the near term. How long OPEC+ is willing to continue to manage production adds uncertainty,” said Bjornar Tonhaugen, head of oil market analysis at Rystad Energy.

The Organization of the Petroleum Exporting Countries, Russia and other producers, an alliance known as OPEC+, agreed in July to extend their supply cuts until March 2020 to boost oil prices.

Russia’s energy ministry said IEA’s estimates were largely in line with its own forecasts and that Moscow had taken into account the possibility of a slowdown in oil demand when it extended an output reduction deal with OPEC.

“Market focus in oil has clearly shifted. It is squarely on future demand rather than on supply,” said Harry Tchilinguirian, global oil strategist at BNP Paribas in London.

Saudi Arabia, de facto leader of OPEC, plans to maintain its crude oil exports below 7 million barrels per day (bpd) in August and September to bring the market back to balance and help to absorb global oil inventories, a Saudi oil official said on Wednesday.

The United Arab Emirates will also continue to support actions to balance the oil market, energy minister Suhail al-Mazrouei said in a tweet on Thursday.

Meanwhile the yen and Swiss franc gained on Friday, as investors sought the safe-haven currencies due to nagging US-China trade war jitters, renewed political uncertainty in Italy and weak economic data around the world. Deep liquidity and current account surpluses in Japan and Switzerland attract safe-haven flows to those currencies during times of geopolitical and economic stress. “What wouldn’t make safe havens look attractive this week,” said John Doyle, vice-president for dealing and trading at Tempus, Inc. in Washington. “The equity board is awash in red. The trade tensions are a big thing and if you look around the world, all the data were negative, or at least concerning. So of course, we’re going to see an uptick in the Swiss (franc) and the yen,” he added. Fears of Washington’s trade war with Beijing escalated after Bloomberg reported the United States has again held off on granting licenses to China’s telecom equipment maker Huawei. US data showed underlying producer prices fell 0.1% in July, suggesting inflation remained muted. Canada’s economy lost 24,200 jobs last month.

In Britain, the economy shrank for the first time since 2012 in the second quarter and sterling slid to a 31-month low against the dollar. There was a sell-off in Italiana bonds as Italy added to the global tension. The ruling League party filed a no-confidence motion against the prime minister, a move the party’s populist chief Matteo Salvani hopes will trigger early elections and install him as the new leader.

The dollar weakened against a basket of currencies, pressured as US President Donald Trump repeated his call for a weaker currency to help American manufacturers. Trump told reporters at the White House he believes the Federal Reserve needs to lower interest rates by a full percentage point. In late morning trading, the dollar fell 0.4% against a surging yen to 105.61 yen, near the seven-month low of 105.5 hit earlier this week.

The yen was on course for its second weekly gain versus the US dollar and its third weekly gain versus the Australian and New Zealand dollars.

The Swiss franc rose versus the dollar and euro. The dollar was last down 0.2% at 0.9732 franc,while the euro slipped 0.1% at 1.0893 francs. The euro rose against the dollar to $1.1198., showing little reaction after Salvini called forearly elections. The dollar index dipped 0.1% slipped to 97.545 and remained on course for its biggest weekly decline since June 21. Sterling fell 0.5% to $1.2075 against the dollar and 0.7% versus the euro, which rose to 92.74pence, after the UK’s weak data.