Oil prices hover near January lows amid surging supply, economic slowdown

Jeannie Matthews
June 8, 2019

Despite Thursday's gains, oil markets are moving into "bear" territory, defined by a 20% fall from peaks reached in late April.

U.S. West Texas Intermediate and worldwide benchmark Brent crude oil futures are trading higher on Thursday after posting a steep sell-off the previous session.

Also potentially keeping a lid on prices is the unrelenting rise in US crude production.

Oil remained bearish on Thursday morning in Asia as the US reported record inventories, while demand continues to be threatened by economic slowdown and trade disputes.

Both Brent and USA crude are in bear-market territory, having lost more than 20% from peaks reached in late April.

Basically, rising USA production is more than offsetting the strategy from OPEC and its allies, and if we consider the potential negative impact of the trade war on future demand, prices are likely to continue lower until supply and demand reach a balance point. -China trade row has had a greater impact on the oil market's narrative, with the clash between the two economic titans sparking global recession worries.

Global economic growth took a dip late past year before recovering in early 2019, but analysts now warn growth is stalling again.

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U.S. West Texas Intermediate (WTI) crude futures were up 71 cents, or 1.4 per cent, at $53.30 per barrel.

With oil demand still holding steady, prices have been upheld until now.

The Middle East-dominated producer club of the Organization of the Petroleum Exporting Countries (OPEC) as well as some non-affiliated producers including Russian Federation, known as OPEC+, have been withholding oil supply since the start of the year to prop up the market.

"High compliance to OPEC's oil production deal and lower on-land oil inventories over the coming months should lead to supply-and-demand deficits in the second and third quarters, putting renewed upward pressure on prices", Swiss investment bank UBS said in its report.

The familiar spectacle of analytical forecasts of crude inventory volumes proving to be wildly off the mark served on Wednesday to continue the commodity's price plunge, with the Energy Information Agency reporting that USA crude inventories rose 6.8 million barrels last week compared with expectations for an 849,000 barrel drawdown. He said the country would take a decision about output reduction in consultation with OPEC colleagues.

OPEC is close to agreeing to extend an oil supply-cutting agreement beyond June, Saudi Arabia's energy minister said on Friday, though the question is how to accommodate participating non-OPEC countries.

USA oil output rose to a record 12.4 million barrels per day (bpd) in the week to May 31, the Energy Information Administration said on Wednesday.

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