Oil rises on China-U.S. trade talks, OPEC cuts

Roman Schwartz
January 5, 2019

Spot prices ranged between $45.61/bbls and $47.66/bbls, ending on the $47 handle.

In physical oil markets, top exporter Saudi Arabia is expected to cut February prices for heavier crude grades sold to Asia by up to 50 cents a barrel due to weaker fuel oil margins, respondents to a Reuters survey said on Thursday.

The Saudis curtailed production by 420,000 barrels a day to 10.65 million last month, from a record of just above 11 million reached in November, the survey showed.

"Typically in the beginning of a new quarter or new year you get new fresh money coming in".

Oil prices rose by more than one per cent on Friday, shaking off earlier losses, after China said it would hold talks with the US government on January 7-8 to look for solutions to a trade dispute between the world's two biggest economies.

Reuters quoted analysts as saying that Saudi Arabia, the biggest producer in OPEC, and several others curbed supplies in the face of rising USA production and inventories. The Saudis have used the price-boosting strategy in the past to shrink USA stockpiles, the most transparent and closely-watched inventories in the world. The U.S. Energy Information Administration forecasts American output will rise to 12.1 million barrels a day in 2019, up 1.2 million barrels a day from the previous year.

China's factory activity falls, adding to concern about economic slowdown and fuel demand.

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"The current bearish bias will therefore continue in the near term and it stands to reason that oil will struggle to break out from its current trough", he said.

"We believe we will see an upward correction", he said. Oil prices ended 2018 lower for the first time since 2015, after a desultory fourth quarter that saw buyers flee the market over growing worries about too much supply and mixed signals related to renewed U.S. sanctions on Iran.

Brent crude futures climbed as much as 5.1% on Wednesday as shipping data showed Saudi Arabia was delivering its announced cutbacks. Some analysts were forecasting the first decline in the rig count - an indicator of future production - in three years in 2019.

U.S. President Donald Trump celebrated the low prices.

Data for December from the Institute for Supply Management (ISM) on Thursday showed the broadest United States slowdown in growth for more than a decade, as the trade conflict with China, falling equity prices and increasing uncertainty started to take a toll on the world's biggest economy.

That's added to bullish sentiment from progress in trade talks between the world's biggest economies and helped offset wider stock market turmoil driven by fears of a slowdown in China. In addition, the US oil production will continue to add a bearish tone, separately said independent analyst Lakshan de Silva. That's the sharpest pullback since January 2017 when OPEC started on its strategy to clear a glut created by surging supplies from shale producers. The United Arab Emirates also cut its overseas sales.

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