Oil prices enjoyed a modest bounce this morning, but bearish sentiment continued to stalk the market.
crude, a benchmark used in many international contracts, was 0.59% higher at $56.59 a barrel, while America’s (WTI) was stable at $46.79.
Fears of over-supply have joined with worries about a global economic slowdown to persuade traders to cut oil prices, ending what had been a positive run during the middle of the year.
No output cuts until January
Brent had stood at $66.79 a barrel a month ago on 19 November, and $79.40 three months ago on 19 September. A year ago, on 19 December 2017, it stood at $63.80.
WTI cost $57.60 a barrel a month ago on 19 November, and $70.77 three months ago on 19 September. A year ago, on 19 December 2017, it cost $57.56.
Earlier this month, the 15-nation energy cartel, the Organisation of Petroleum Exporting Countries (OPEC) agreed, along with friendly non-OPEC oil-producing nations, to cut the equivalent of about 1% of global oil demand from their output. This would normally be expected to have the desired effect and support the price.
But while the cuts do not kick in until the New Year, headwinds in the oil market are very much a current concern.
One is a fear of overproduction. Saudi Arabia, the US, and Russia, this last being a key member of the supportive “NOPEC” group, are pumping vast quantities of crude, with American shale-oil production, in particular, at record levels.
Another is anxiety about a possible economic downturn, one that is increasingly believed to be on the cards. Reduced demand for oil is one immediate consequence of a recession.
Snow may bring some relief
In its December oil-market report, OPEC said: “After a healthy start to the year, the world economy in 2018 was marked by a rising divergence in growth trends. Within the OECD (the Organisation for Economic Co-operation and Development, the rich nations’ club), the US managed to grow by a much higher rate than other economies, fuelled by an extraordinary fiscal stimulus.”
“Oil prices continued to fall since early October and witnessed eight consecutive weekly declines, to reach their lowest level since October 2017…prices continued to decline amid weaker market fundamentals as the market focused on global oil supply, which rose faster than expected, particularly from the US.”
The severity or otherwise of winter weather this year will play a big part in oil-price movements, and here theremay be cause for cheer for oil producers, at least as far as the UK is concerned. Some private forecasters are expecting heavy snowfalls, but the official Met Office said a bitter winter is not necessarily on the cards.