Oil rises to 2019 highs on strong China demand despite economic slowdown

22 January, 2019, 09:35 | Author: Erin Carter
  • Oil Slips as America's Record Output Weighed Against OPEC+ Curbs

Brent crude oil futures LCOc1 were up 12 cents at $62.83 a barrel by 3:23 p.m. EST (1727 GMT) versus Friday's settlement price, while USA crude futures CLc1 were up 19 cents to $53.99 a barrel. US West Texas Intermediate (WTI) crude futures were at $52.64 per barrel, up 57 cents, or 1.09 percent, from their last settlement.

The decline in Venezuelan production has also slowed, while more growth is expected in the United States where liquids production increased by an "incredible and unexpected" 2.1 million barrels a day in 2018, the IEA said.

Stock markets are still up so far this month, which has given oil investors more confidence to bet aggressively on a rise in crude prices. After closing out 2018 in free-fall, US crude prices have rebounded more than 18 percent to start this year.

"Trade war concerns have reduced global growth expectations and with it comes a lower demand for energy", said Alfonso Esparza, senior analyst, OANDA.

In the first half of 2019, OPEC+ countries will reduce oil production by 1.195 million barrels per day - to 43.874 million barrels.

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The price market structure for the Brent crude price has flipped to a slight backwardation after hovering in a slight contango for the past two weeks. Whether prices will remain in a bull market largely depends on the impact of the 1.2 MMbpd in cuts pledged by major crude producers. The price of oil remains about 20 percent up on the 18-month low registered in late December, but investors appear to remain concerned about the trade war between the U.S. and China.

The month before that, Saudi Arabia had increased its October crude oil exports to what was then the highest level since January 2017, when the initial OPEC/non-OPEC production cut deal began.

Iran registered the third-largest decline in output, also involuntary, as US sanctions that started in November discouraged companies from buying its oil. Prices got another boost later, on expectations that USA sanctions on Iran would cut supplies to major importers including China, India and Japan.

US drillers cut 21 oil rigs this week, the biggest decline since February 2016.

China, as the world's second-largest economy and largest crude oil importer, took advantage of the low oil prices in late 2018 and imported a record 10.35 million bpd in December 2018, amid independent refiners lifting their import quotas. Net imports are expected to continue to fall, to an average of 1.1 million bpd this year, and to less than 100,000 bpd in 2020.

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