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Oil Rises as OPEC Signal on Output Curbs Counters Trade Risk


May 21, 2019 by Tsuyoshi Inajima and Grant Smith

(Bloomberg)

Oil rose on signs OPEC and its allies will extend production cuts beyond June, while a steadily deteriorating U.S.-China trade relationship kept prices from pushing higher.

Futures increased 0.7% in New York after closing up 0.5% on Monday. Saudi Energy Minister Khalid Al-Falih urged the OPEC+ coalition to “stay the course” on output limits after a meeting in Jeddah over the weekend. Yemeni rebels backed by Iran said they’d attacked an airport in southern Saudi Arabia, further stoking tensions in the Middle East, while China warned it could retaliate against the U.S. after Washington blacklisted Huawei Technologies Co.

The possible extension of supply curbs by the Organization of Petroleum Exporting Countries and its allies could be a catalyst for oil to resume this year’s rally, which has floundered over the past month. Rising tension in the Middle East and involuntary output cuts from Venezuela to Russia have also been aiding prices. But rising stockpiles in the U.S. and the breakdown in relations between the world’s two biggest economies are keeping gains in check.

“OPEC+ is staying on the sidelines for now, reluctant to add significant volumes to markets so long as overall measures of inventories remain apparently adequate,” Citigroup Inc. analysts including Ed Morse wrote in a report. The bank is “cautiously optimistic a trade war today will result in at least an interim trade deal this year.”

West Texas Intermediate crude for June delivery, which expires Tuesday, gained 42 cents to $63.52 a barrel on the New York Mercantile Exchange at 11:09 a.m. in London, after adding 34 cents on Monday. The more actively traded July contract rose 0.7% to $63.68.

Brent for July settlement increased 35 cents to $72.32 a barrel on the London-based ICE Futures Europe exchange, after dropping 24 cents on Monday. The spread between the first and second month contracts is in strong backwardation, where prompt prices are higher than later-dated prices, indicating tight supply. The global crude benchmark traded at a $8.63 premium to WTI for the same month.

Oil ministers from Saudi Arabia and other OPEC producers said at their meeting over the weekend that they were inclined to extend the production cuts into the second half of 2019. Al-Falih said the kingdom “isn’t fooled” by crude prices and believes the market is still fragile. While suggesting he is open to relaxing the cuts, Russian Energy Minister Alexander Novak said his country would still comply with any agreed output limit until year-end.

Zhang Ming, China’s envoy to the European Union, said the Trump administration’s move against Huawei is “wrong behavior” and an “abuse of export-control measures,” as he warned there would be a “necessary response.” U.S. President Donald Trump said he was “ very happy” with the trade war and that China wouldn’t become the world’s top superpower on his watch.

Other oil-market news: U.S. crude inventories probably fell 1.9 million barrels last week, according to a Bloomberg survey of analysts before government data due Wednesday. Venezuela, which sits atop more oil than Saudi Arabia, has fallen behind three other Latin American countries in terms of crude production as years of mismanagement and lack of investments take their toll. Nigeria’s Forcados crude pipeline has been closed as a precaution following a fire near the link, according to Kola Karim, CEO of Shoreline, which uses the export conduit.



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