Oil steadies but faces headwinds
09 May 2017 - 22:47
London: Oil rose yesterday but faced headwinds from concern over slowing demand and the rise in US crude output that has shaken investors’ faith in the ability of Opec to rebalance the market.
Brent crude futures were up 9 cents at $49.43 per barrel at 1110 GMT, above a session low of $49.18, while US West Texas Intermediate futures were up 11 cents at $46.54 per barrel.
Weekly US data on crude production and inventories, plus monthly reports on supply and demand from the Organisation of the Petroleum Exporting Countries (Opec) and the US Energy Information Administration this week, should provide a detailed picture of how quickly global crude inventories are falling.
“We really need to see some of the data starting to support the idea that global inventory levels are coming down,” Saxo Bank senior manager Ole Hansen said.
“Almost as importantly, there have been some signs that there has been some wavering in terms of demand growth.”
High US gasoline stocks have fed some concern about demand in the United States, where consumer spending expectations hit a three-year low last month and vehicle sales have fallen year-on-year for four months in a row.
Coupled with that is faltering manufacturing activity and a drop in commodity imports in China, the world’s second-largest economy and biggest raw materials consumer.
Even though Opec has stuck to its pledge to cut production, US output has risen by more than 10 percent since mid-2016 to 9.3 million barrels per day, close to the output of Russia and Saudi Arabia.
“US oil production surpassed expectations in terms of an early bottoming and swift uptick, and is set to expand further based on the latest drilling momentum,” said Norbert Ruecker, head of macro and commodity research at Julius Baer.
“We see prices between $45-50 per barrel as fundamentally justified. Consequently, we have raised our view to neutral from bearish and closed our short position. An extension of the supply deal beyond June looks likely but its effectiveness will remain questioned.”
Bank of America Merrill Lynch said slowing demand was also suppressing oil prices.
“Oil demand growth this year is underwhelming, in part explaining why crude oil prices and refining margins have sold off sharply recently,” it said.