Oil falls amid economic slowdown; supply cut consensus offers support

Fredrick Soto
June 7, 2019

The EIA report also showed that gasoline inventories increased by 3.21 million barrels, compared to expectations for a gain of 0.63 million barrels, while distillate stockpiles rose by 4.57 million barrels, compared to forecasts for a build of 0.50 million.

Al-Falih's assurances weren't enough to calm traders anxious that simmering trade disputes will squelch the economic growth that underpins oil demand.

"Crude inventories are now at their highest since July 2017, up almost 44 million barrels since mid-March", Smith said.

Sechin-who has criticized Russia's involvement in the deal in the past-questioned the Russian rationale of sticking to the cuts, saying that the US would take market share out of Russia if the OPEC+ deal is extended.

Oil prices steadied on Thursday after hitting a near five-month low in the previous session but sentiment remained weak due to rising US supply and a stalling global economy.

Brent crude futures were up 13 cents to $60.76 a barrel by 12:25 p.m. EDT (1625 GMT), while U.S. West Texas Intermediate crude futures gained 2 cents to $51.70 a barrel. If supply cuts continue, it could continue to keep crude oil prices supported even as demand weakens.

President Trump's threat last week to slap tariffs on Mexican goods, effective June 10, raised fears global economic growth will slow and cut demand for oil and gas.

Brent crude futures tumbled below $60 a barrel after a report showed United States crude and fuel inventories ballooning by the most in nearly 30 years, feeding fears of a glut as trade disputes threaten demand.

Crude oil futures are now around 20% below their 2018 peaks reached in late April, Reuters reported. Saudi Energy Minister Khalid Al-Falih said Monday that recent volatility is "unwarranted" and predicted allied crude producers will continue efforts to avoid an oversupply for the rest of 2019.

But outside OPEC+ supply is rising, not just in the United States.

Oil prices rallied strongly in the first five months of the year to a high of about $75 a barrel, supported by supply curbs by OPEC and some non-OPEC producers including Russian Federation, an alliance known as OPEC+. "Any rallies in crude oil at this point we feel will be short lived".

Oil prices rebounded as fears about energy demand subsided a bit amid reports the USA administration will likely delay tariffs on Mexican imports.

Despite high price volatility, Goldman Sachs still expected the benchmark prices to likely remain at current levels, considering "an increasingly uncertain macro outlook as well as rising USA production and large available core-OPEC spare capacity" that would help offset supply reduction of Iran and Venezuela.

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