Oil prices fell by 1 per cent yesterday on growing U.S. supply, although the mood in global markets was increasingly confident amid hopes the United States and China may soon end trade disputes that have undermined global economic growth.
U.S. West Texas Intermediate (WTI) crude oil futures were at $51.75 per barrel down 61 cents, or 1.2 per cent, from their last settlement, while the International Brent crude futures were down 1 per cent or 63 cents, at $60.81 per barrel.
Both oil price benchmarks had jumped by around 5 per cent the previous day as financial markets around the world surged on the hopes that Washington and Beijing may soon be able to end their trade disputes, soothing fears of an all-out trade war between the two biggest economies and its possible impact on global growth.
“Amid easing trade tension and a weaker U.S. dollar, crude oil prices rallied after Saudi Arabia reassured the market that its production cuts would remain in place,” ANZ bank said yesterday.
Saudi Arabia’s energy minister said on Wednesday he was confident that supply cuts started in late 2018 by the Organization of the Petroleum Exporting Countries (OPEC) and some allies, including Russia, aimed at reining in oversupply would bring the oil market into balance. Khalid al-Falih said he would not rule out calling for further action in future, if needed.
Despite this, U.S. bank Morgan Stanley cut its 2019 oil price forecasts by more than 10 per cent on Wednesday, pointing to “weakening economic growth expectations” and rising oil supply from outside OPEC as reasons for their lower price forecast.
Morgan Stanley now expects Brent to average $61 a barrel this year, down from a previous estimate of $69 a barrel, and U.S. crude to average $54 per barrel, against a prior forecast of $60. “Balancing the market would require OPEC discipline to continue well into 2020,” it said.
The main source of new supply is the United States, where crude oil production remained at a record 11.7 million barrels per day (bpd) in the week ending January 4, the Energy Information Administration (EIA) said on Wednesday. This has resulted in swelling fuel inventories.
Although crude stocks dipped by 1.7 million barrels, to 439.74 million barrels, they remained above their five-year seasonal average of 435 million barrels.
Gasoline stocks rose 8.1 million barrels, to 248.1 million barrels, marking the largest weekly rise since December, 2016. Distillate stocks swelled by 10.6 million barrels, to 140.04 million barrels.
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