Oil bounces back above $63, but glut worries persist
Trump yesterday praised Saudi Arabia for helping to lower prices
Oil bounced above $63 a barrel yesterday to claw back some of the previous day’s 6 per cent plunge, lifted by a report of an unexpected decline in US crude inventories.
The American Petroleum Institute (API) said on Tuesday that US crude stocks last week fell by 1.5 million barrels, easing concerns for now that a supply glut is building up.
“The move yesterday was extremely sharp; after such moves you expect to have some rebound,” said Olivier Jakob, analyst at Petromatrix. “The API reported a stock draw - it is not a big one but at least it’s not a 10-millionbarrel build.”
Brent crude, the global benchmark, was up 66 cents to $63.19 per barrel at 1410 GMT and traded as high as $63.96. US crude gained $1.14 to $54.57.
But yesterday’s bounce did little to reverse overall market weakness. Crude fell more than 6 per cent in the previous session and world equities tumbled as investors grew more worried about economic growth prospects.
Brent has fallen by more than 25 per cent since reaching a 4-year high of $86.74 on October 3, reflecting concern about forecasts of slowing demand in 2019 and record supply from Saudi Arabia, Russia and the United States.
Worried by the prospect of a new supply glut, the Organization of Petroleum Exporting Countries is talking about reducing output just months after increasing production.
Opec, Russia and other non-Opec producers are considering a supply cut of between 1 million barrels per day (bpd) and 1.4 million bpd at a December 6 meeting, sources have said. Still, Saudi Arabia may find taking action to support prices harder, analysts say, with US pressure to keep them low. President Donald Trump yesterday praised Saudi Arabia for helping to lower oil prices.
“It is more difficult to expect a supply cut when you have the US president giving full support to Saudi Arabia and asking Saudi to maintain low prices,” Jakob said.
Goldman Sachs said in a note yesterday that it expects oil markets to remain highly volatile in the coming weeks.
Oil markets clawed back some ground yesterday after tumbling more than 6 per cent the previous day in heavy trading volumes.
“It will take a fundamental catalyst for prices to stabilise and eventually trade higher,” Goldman said in the note, adding that such a catalyst would include physical evidence that Opec production is “sequentially” declining and further proof of demand resilience.
The Organisation of Petroleum Exporting Countries (Opec) is pushing allied producers including Russia to join in output cuts of 1 million to 1.4 million barrels per day.
Goldman said the renewed price collapse reflected “concerns over excess supply in 2019 ... (and) a broader cross-commodity and cross-asset sell-off as growth concerns continue to mount.”
The investment bank said a sharp collapse in demand or the absence of an Opec production cut would be the two main risks to a recovery in prices from current levels. “While both are unlikely, we are more concerned about the latter, with such a shift leading to sustainably lower prices,” Goldman said.
The Organisation of Petroleum Exporting Countries (Opec) is pushing allied producers including Russia to join in output cuts of 1 million to 1.4 million barrels per day.