Oil increases by 1% on supply cuts but economic slowdown expected

Oil increases by 1% on supply cuts but economic slowdown expected

/ Financial News / Wednesday, 16 January 2019 06:33

Oil prices have risen 1% since Tuesday amid supply cuts led by OPEC and Russia.

International Brent crude oil futures were at $59.64 per barrel and up 65 cents or 1.1% from their last close.

Crude oil production in the United States has hit a record 11.7 million barrels per day as of last year, despite OPEC and Russia having cut supply and Iran restrained by sanctions. This allows U.S. oil producers to export crude, including to top importer China.

U.S West Texas Intermediate (WTI) crude futures stood at $51.09 per barrel, up 1.2%.

U.S. bank J.P. Morgan has said the impact of OPEC+ (OPEC and others including Russia) cuts, Iran sanctions and lower month-on-month growth in U.S. production should help to support oil prices from current levels. The Middle East-dominated producer club of the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC allies, including Russia, agreed in late 2018 to cut supply to rein in a global glut.

In November, the United States re-imposed sanctions against Iran’s oil exports, with Washington granting sanction waivers to Iran’s biggest oil customers, mainly in Asia. However, Iran’s country’s exports have plummeted.

HSBC bank have said Iranian exports “have already fallen sharply and are likely to remain at around 1.3 million barrels per day (bpd) in 2019, 1.3 million bpd down vs their 1H18 average,” in its 2019 oil market outlook.

Gulf Coast, the first departures since late September and a 90-day pause in the two countries’ trade war that began last month.

Three cargoes of U.S. crude are expected to arrive at Chinese ports between late January and early March.

An economic slowdown is expected across the oil and financial markets.

Oil price increases on Tuesday came after crude futures fell by more than 2 percent the previous session, dragged down by weak Chinese trade data which pointed to a global economic slowdown. 

HSBC bank says the outlook for the global economy continues to be “highly uncertain”, citing surging U.S. production and an “increasingly uncertain demand backdrop”. The bank said it had cut its average 2019 Brent crude oil price forecast by $16 per barrel, to $64 per barrel.


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