According to the news report by Bloomberg, after 4 consecutive trading days of declines, the price of oil rose after indications of supply cuts from OPEC and its allies overshadowed anxieties about a global economic slowdown due to the increasingly acrimonious trade war between the United States and China and Mexico.
Oil futures closed the trading day 0.4% higher. The WTI price for a July Settlement has gone up by 23 cents to close at $53.48 a barrel. The international benchmark Brent for the August settlement has gone up by 69 cents to close the day at $61.97 per barrel. Brent is trading at a premium of $8.34 to the WTI at this time.
The world’s biggest oil trader, Vitol Group, said that it is expecting OPEC as well as its allies to broker a deal to cut oil production in the latter half of 2019.
Khalid Al-Falih, the Saudi Arabian Energy Minister, stated he was committed to taking whatever steps that were necessary to stabilize the oil markets. He said that he was confident that the OPEC alliance would do what would be needed to ensure stability past the month of June. He also stated that the recent volatility in the price was unwarranted.
Saudi Arabia increased oil production in May by the most in 2019 due to the fact that output from Iran, another OPEC member, dropped to its lowest since 1990 – largely due to the strong sanctions imposed by the US. The kingdom has been willing to replace most of the oil barrel production lost from Iran, which is expected to cause a rather contentious meeting between the two countries at the next OPEC meeting.
Despite this, the two major benchmarks, WTI (West Texas Intermediate) and Brent International, were almost at their lowest in the last 4 months, largely due to issues with demand. Added to that was JP Morgan Chase & Co’s revelation that the chances of the United States entering a recession in the second half of the year had gone up from 25% last month, to 40% now.
Ed Morse, the team leader of the analysts at Citigroup Inc., stated that the global economic situation seemed to be deteriorating, especially due to the rising trade war. However, this larger pessimism in markets was masking the bullish sentiment in the oil market.
Since its peak in April, the American oil benchmark, WTI has dropped by nearly 20%, pushing it to the edge of a bear market. This decline in oil prices coincided with the renewed tensions between the US and China, as well as new tariffs being imposed by the US on Mexico.
Despite that, the expectation is that the market will be supported on the up-side in the short term, since OPEC and its allies are expected to stick to their output limits when they meet in the next few weeks. This decision will coincide with the US summer driving season, which will help clear out American oil inventories.
US oil inventories are a critical marker for investors who are looking at a balance being created in markets.
According to analysts at UBS, crude can be expected to rise to as much as $75 per barrel in the next 3 months. This is because the markets will be undersupplied. Societe Generale is forecasting that the international crude price will be at an average of $72.50 per barrel in the latter half of the year.
Tradition Energy’s market research manager Gene McGillian states that it is quite clear that demand concerns still control the markets, however, some of these fears may have been over-extended. He says that refinery utilization is back to above 90%, so the WTI should rise once again.