Crude Price Gains Viewed as Temporary Deviation, Not a Rebound

Fredrick Soto
June 9, 2019

By Alex NussbaumWest Texas Intermediate crude entered a bear market and Brent tumbled below $60 after United States petroleum inventories ballooned, raising fears of a glut as trade disputes threaten demand.

Oil prices rose more than 1 per cent on Friday, climbing further away from five-month lows hit earlier in the week after a report that Washington could postpone trade tariffs on Mexico and amid signs that OPEC and other producers may extend their supply cuts. The kingdom has been willing to replace most of the oil barrel production lost from Iran, which is expected to cause a rather contentious meeting between the two countries at the next OPEC meeting.

Oil prices on Thursday hovered around their lowest levels since January as markets remain under pressure from rising US supply and stalling demand amid an economic slowdown.

Brent crude futures settled at $61.67 a barrel, gaining $1.04, or 1.7%.

The tight supply from OPEC production from the start of the year has helped to keep prices under control.

In a midst of surging yields, US commercial crude inventories also soared to their highest levels since July 2017.

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 U.S. benchmark closed 0.4 per cent higher on Tuesday.

US West Texas Intermediate futures for July fell $1.80, or 3.4 per cent, to settle at $51.68 a barrel on the New York Mercantile Exchange.

The global oil market has taken a heavy toll due to heightened worries about weakening global economic growth, triggered by trade frictions between the United States and its trading partners.

Oil has fallen nearly 20% from a peak in late April, taking it to the brink of a bear market, as trade relations between Washington and Beijing soured and the White House announced tariffs on Mexican goods.

Brent, the global benchmark for oil, fell below the key $60 per barrel support level Wednesday after a big surprise build in US crude stockpiles, triggering questions on how much more production OPEC could cut to save a market plunging deeper into bear-market territory.

Crude oil prices are navigating the lower bound of the recent range after the sharp sell-off since mid-May appears to have met decent contention in yesterday's lows just above the key $50.00 mark.

"It's the ideal storm, in a way, of increased supply coupled with perceptions of slowing demand growth", Steeves said.

Members of Opec+, which includes most Opec members, along with a number of non-Opec producers led by Russian Federation, are preparing to discuss whether to extend their supply curbs totaling 1.2 Mmbpd past June 30, later this month.

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

Morgan Stanley dropped its forecast for increased in oil demand for 2019 from 1.2 million barrel per day to 1.0 million barrel per day, and cut its Brent price forecast for the second half of 2019 to $65-$70 per barrel, from $75-$80.

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