Markets

Oil Rises on Indications of Supply Cuts

Oil Rises on Indications of Supply Cuts

Oil futures were largely steady on Thursday, after falling to near five-month lows in the previous session, as sentiment remained weak on fresh signs of a stalling global economy and ongoing concerns about growth in supply.

U.S. WTI settled +1.8% to $52.59/bbl and Brent futures finished +1.7% at $61.67/bbl, and both benchmarks are rallying almost 3% in post-settlement trade.

On Wednesday, Brent and WTI hit their lowest since mid-January at $59.45 and $50.60 respectively after US crude output reached a record high and stockpiles climbed.

With attention focused mainly on the US stock market and crude fundamental ignored as usual, it was relatively unsurprising that a price in stocks due to reports that USA president Donald Trump may delay imposing tariffs on Mexico would cause a price increase in oil on Thursday - at one point exceeding 2 percent.

Wednesday's latest weekly dataset from the U.S. Energy Information Administration was another example of the dire situation in oil with crude oil inventories increasing by 6.77 million barrels in the week to May 31 versus forecasts for a stockpile draw of 0.85 million barrels.

Brent for August settlement gained $1.62 to $63.29 a barrel on London's ICE Futures Europe exchange but was still down 1.9% this week.

Earlier, production at Kashagan was around 330,000 to 340,000 barrel per day.

Crude oil futures rose 3.88 per cent to Rs 3,721 per barrel on Friday as speculators raised their bets on hardening of oil prices overseas.

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"The investment bank says that there are three big factors that are 'mispriced developments" in the oil market - 'the Permian debottlenecking, the supply response of low-cost producers and the IMO 2020 shift in bunker sulfur regulation.' New pipelines and new export capacity along the U.S. Gulf Coast should 'lower the global marginal cost of production, ' Goldman analysts argued.

The move sent WTI sharply falling 3.09 US dollars, while Brent crude dropping 2.38 dollars the following day, as Mexico is a major supplier of crude oil for the United States with lucrative cross-border energy trade.

The 14-member OPEC and its 10 allies led by Russian Federation are due to met in Vienna on June 25 to discuss further production cuts to balance the market.

Trump threatened on May 30 to impose a 5-percent tariff on Mexican products as of June 10 and gradually increase the figure to 25 percent in October if Mexico does not stop the flow of illegal migration that reaches its border with the United States. Mexico is a major source of crude oil to US refineries and the biggest purchaser of American gasoline exports. Analysts had forecast a 849,000 barrel decrease.

Oil prices fall to their lowest since January after government data showed surging stockpiles of crude and fuels.

"So we expect the current market focus on trade tensions and oil demand growth to yield soon to the supply dynamics of OPEC+ curbs and the lower output from Iran and Venezuela", UBS noted.

Though demand for oil is still up on a global level, economic concerns are also growing.


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