Oil prices increase as fears of tighter supply diminish
Oil rose to $51 a barrel yesterday on perceptions that a price slide to 2017 lows prompted by economic worries had been overdone amid an Opec-led effort to tighten supply.
Crude has been caught up in wider financial market weakness as the US government shutdown, higher US interest rates and the US-China trade dispute unnerved investors and exacerbated worries over global growth.
Brent crude, the global benchmark, was up 60 cents at $51.07 at 2.15pm. It earlier fell to $49.93, the lowest since July 2017, and posted a 6.2pc slide in the previous session. US crude was up 75 cents at $43.28.
“I think there is a little bit of over-extension to the downside linked to global market fears. Opec has shown it wants higher prices and is working towards that goal,” said Olivier Jakob, analyst at Petromatrix. “It’s all about equities.”
Still, the head of Russian oil company Rosneft, Igor Sechin, predicted an oil price of $50-$53 in 2019, a long way off the four-year high of $86 for Brent crude reached earlier this year.
Mr Sechin, an ally of Russian president Vladimir Putin and a critic of Opec, said the price slump was mostly linked to the US rate hike announced last week.
While economic worries have weighed, the outlook is not as weak as in 2016 when a supply glut built up, because Opec this time is trying to prop up the market, Mr Jakob said. Concerned that a new glut could take shape, Opec and its allies, including Russia, decided earlier this month to return to cutting production in 2019, unwinding a decision taken in June 2018 to pump more oil.
Stephen Innes, head of trading for Asia-Pacific at futures brokerage Oanda in Singapore, said some buying interest had returned, but added economic worries will continue to weigh unless Opec reassures the market as to the viability of the supply cuts and “even imposes deeper ones as some members have suggested”.