Oil dips amid trade worries, Opec expectations cut more support

Monday, 12 Aug, 2019

Reports that Saudi Arabia, the world's biggest oil exporter, had called other producers to discuss the slide in crude prices might also have supported the market, he said.

According to the EIA, U.S. crude oil production averaged 12.3 million barrels per day (b/d) last week, up by 100,000 b/d from the previous week and up by about 1.5 million b/d year on year.

Persistent worries about demand growth have weighed on global oil markets, particularly as the world's two biggest economies are locked in a trade row.

Earlier in the week, the EIA reduced its forecast for US demand for crude and liquid fuels.

In its latest Short-Term Energy Outlook (STEO), EIA forecast USA crude oil production will average 12.3 million barrels b/d in 2019 and 13.3 million b/d in 2020, both of which would be record levels.

Pump jacks operate at sunset in an oil field in Midland, Texas U.S. August 22, 2018.

The bank lowered its 2019 price outlook, mostly because of demand concerns, forecasting that global oil supplies will exceed consumption in the first half of next year.

Global financial markets have been rocked over the past week after US President Donald Trump said he would impose 10% tariffs on more Chinese goods starting September and as a fall in the Chinese yuan sparked fears of a currency war.

Russia's energy ministry said IEA's estimates were largely in line with its own forecasts and that Moscow had taken into account the possibility of a slowdown in oil demand when it extended an output reduction deal with OPEC. Of course, as escalation of tensions between the USA and China could help cap gains or lead to another steep break, but you can't trade scared.

Meanwhile, Saudi Arabia Energy Minister Khalid Al-Falih and U.S. Energy Secretary Rick Perry on Tuesday said both sides expressed concern over threats targeting freedom of maritime traffic in the Arabian Gulf as they met in Washington. But a cooling global economy and the U.S-China trade dispute are putting a brake on fuel demand, so even if global producers decide to cut output further, they may struggle to revive prices. This could trigger another steep break in prices.

Giovanni Staunovo, analyst for UBS, tried to rationalize what motivated traders by stating, "The demand growth cut was already announced previously by the head of the IEA, and the agency still expects larger inventory draws for 2H19". The build-up in inventory was related to lower consumption in the USA - the world's largest economy. This week, we're going to see if expectations of OPEC production cuts will be enough to provide support.