Business

Tuesday 28 February 2017

Oil stable after two-day decline on stalling global growth

A deal to freeze oil output by OPEC and non-OPEC producers fell apart last night after Saudi Arabia demanded that Iran join in despite calls on Riyadh to save the agreement and help prop up crude prices (AP)
A deal to freeze oil output by OPEC and non-OPEC producers fell apart last night after Saudi Arabia demanded that Iran join in despite calls on Riyadh to save the agreement and help prop up crude prices (AP)

Oil prices stabilized on Wednesday after falling for two straight days on concerns that slowing economic growth and rising Middle East output would extend a global supply overhang.

Brent crude futures were trading at $45.02 (31 pounds) per barrel at 0703 GMT, up 5cs from their last settlement.

U.S. crude was up 11cs at $43.76 a barrel.

Wednesday's dips followed two trading sessions in which Brent fell nearly 7pc and WTI nearly 5pc from end-April levels, pulled down by rising output from the Middle East and renewed signs of economic slowdown in Asia.

"Asia's big markets continue to disappoint: Japan sank further, China relapsed, and India slipped," said Frederic Neumann of HSBC in Hong Kong, adding that exports were "stuck below the waterline" and "local demand looks wobbly, too."

In the United States, the economy is also stuttering.

"Factory orders dropped for a 16th straight month," said the U.S.-based Schork Report. "The U.S. is set for sub-3pc growth for a record 11th year," it said.

Despite this, most analysts expect markets to firm towards the second half of the year.

Barclays said that "unplanned outages look unlikely to abate in the next couple of months, which have contributed to a tighter 1H16 oil market" and that "lower spare capacity, heightened disruption risk in Iraq and Venezuela, and lower supply ex-U.S. mean prices will likely average higher in Q4 than previously forecast."

The bank said that it expected Brent to average $44 per barrel this year, an upward revision of $5 from its previous outlook, and U.S. crude to average $42 a barrel this year.

In oil production, U.S. output has fallen from a peak of over 9.6 million barrels per day (bpd) in summer last year to just over 8.9 million bpd currently, triggering one of the biggest wave of bankruptcies in American corporate history.

Despite falling output, U.S. crude inventories rose by 1.3 million barrels in the week to April 29 to 539.7 million barrels, according to data from the American Petroleum Institute, enough to meet global demand for almost a week.

Still, strong demand for refined products reduced stockpiles of gasoline, diesel and heating oil.

"We expect some support from the U.S. (summer) driving season. Bloated crude stocks will thus unwind in the coming months," BMI Research said.

"We believe prices will strengthen above $50 per barrel, trading in a range of $50-$60 per barrel until the end of the year," it said.

In the Middle East, Iraqi exports are expected to rise in April to 3.4 million bpd, while Saudi Arabian production could return to 10.5 million bpd. Iranian exports have nearly doubled since the start of the year to almost 2 million bpd.

Reuters

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