Oil steady but set for 2019′s biggest weekly loss

Jeannie Matthews
May 25, 2019

The price of Brent crude fell to almost $50 per barrel in December, from $85 just two months earlier as U.S. shale flooded the market, causing oil producing cartel Opec to strangle supply in January.

Futures in NY rose as much as 0.9% Friday after plunging 5.7% the day before.

Brent for July settlement rose 69 cents, or 1%, to US$68.45 a barrel on the London-based ICE Futures Europe exchange after tumbling 4.6% Thursday.

USA crude oil inventories rose last week, hitting their highest levels since July 2017, the government's Energy Information Administration said on Wednesday.

U.S. West Texas Intermediate (WTI) crude futures were down by 31 cents, or 0.5 percent, at $61.11 per barrel.

Weekly U.S. rig count data, an indicator of future output, showed U.S. energy firms this week reduced the number of oil rigs operating for a third week in a row. Equity markets also slumped, with six of every seven companies in the S&P 500 Index dropping after China assailed American sanctions and US lawmakers proposed a ban on Chinese 5G technology.

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Ole Hansen, head of commodity strategy at Saxo Bank, said "concerns about slowing (oil) demand growth due to the negative impact on the global economy of the U.S".

Weak refinery demand and the planned sale of USA strategic petroleum reserves (SPR) into the commercial market have also set up crude for its worst weekly performance in 6 months.

China in 2018 surpassed the U.S.as the world's largest importer of crude, boosting its supplies as domestic production declined. The research firm's reading from its survey of services companies also slumped to a 39-month low of 50.8, fanning fears of a broad economic slowdown in the U.S. that could temper demand for oil.

The oil market has built in risk premium related to US sanctions on Iran, and that risk is now seen decreasing, he said.

Global oil markets generally remain "well supplied" but also "thinly balanced" between supply and demand.

"A decline below our expected next support level of $56 (for WTI) will likely associate with a further plunge in equities that would be heavily related to unresolved trade issues between the USA and China. volatility across all markets will be heightened until some significant trade progress is seen". In fact, Oil & Gas 360 just released an article yesterday entitled, Rough Day for Oil: Crude Plunge Approaches 6% discussing the plunge in oil prices in detail. The drop in oil prices may give the Organization of Petroleum Exporting Countries and its allies more incentive to extend their production cuts beyond June. "We're going to see a drift lower until there's a resolution of what's happening with China", said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.

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