Oil rebounds to $81, pares gain as IEA sees adequate supply

Roman Schwartz
October 15, 2018

"Nonetheless, our position is that expensive energy is back, with oil, gas and coal trading at multi-year highs, and it poses a threat to economic growth", said the report.

The energy watchdog noted that the world's spare oil production capacity was down to 2 percent of global demand, with further imminent falls. "For many developing countries, higher worldwide prices coincide with currencies depreciating against the US dollar, so the threat of economic damage is more acute".

Global oil supply is growing fast; in September, world oil production, at around 100 mb/d, was 2.6 mb/d higher than a year ago, according to the IEA estimates.

Crude futures steadied late in the session on Friday, following the stock market slightly higher after earlier swinging lower on a weakening oil demand outlook.

In U.S. oil markets, a decline in commercial crude inventories provided WTI with stronger support than Brent.

For energy importers, the squeeze in supply is stoking inflation, while climbing US rates lure funds from their markets.

Members of the Organization of the Petroleum Exporting Countries (OPEC) and other exporters such as Russian Federation agreed in June to raise output as the market appeared increasingly tight.

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"The bearish alarm bells are ringing for next year's oil balance as market players brace for the return of a supply surplus", said Stephen Brennock of oil broker PVM. A drop in equities amid wider risk-off investor sentiment had pressured crude on Thursday.

'A rebound in equity markets would help Brent to rebound from $80, ' said Olivier Jakob, analyst at Petromatrix, adding that a dip below $80 on Thursday did not clearly break that level as a source of technical support.

Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas U.S. August 22, 2018.

"This strain could be with us for some time and it will likely be accompanied by higher prices, however much we regret them and their potential negative impact on the global economy".

Hurricane Michael weighs on Gulf of Mexico oil output.

Michael crashed ashore Florida on Wednesday as the third most powerful hurricane to strike the USA mainland.

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