Oil’s 2019 rally shows little sign of losing momentum, with crude prices higher on both sides of the Atlantic.
The big slump seen in December last year is fast becoming a distant memory, as oil is within a few dollars of its level a year ago.
Its slide late last year seems to have been triggered by a number of factors including fears of a global economic slowdown and scepticism that a new deal between members of the 14-nation energy cartel, the Organisation of Petroleum Exporting Countries (OPEC) and other oil producers would effectively support the price.
Brent and US crude prices recover
The fact that the deal was signed on 7 December but did not take effect until January gave traders several weeks in which to express their scepticism, and the price hit a recent low on 24 December.
Since then, both crude, which is used in many international contracts, and have rallied strongly. Brent was 0.83% higher today at $65.75 a barrel, while WTI was unchanged at $56.09.
Current prices are little changed on a year ago, on 27 February 2018, when Brent traded at $66.63 and WTI stood at $63.01.
What has changed is that market opinion has shifted with regard to both the OPEC-led deal and the world economic outlook.
In its February oil report, OPEC noted that: “Oil futures prices recovered in January from their low levels in December last year, ending the month substantially higher compared with the previous month, up by around 5%. Investors gained confidence amid improving oil market fundamentals and signs that high conformity levels were contributing to a more balanced market.”
Supply disruption may prove a bonus
The conformity in question refers to signatories to the December deal honouring their commitments to reduce output in order to bolster the price. In the past, such agreements have been plagued by individual countries seeking to “free ride” on others’ output restraint by cheating on their quotas.
Supply disruption arising from political tensions can be good news for other oil producers as they take oil off the market, putting upward pressure on the price.
The December deal was struck between OPEC and members of the so-called NOPEC group, non-member oil producers sympathetic to OPEC’s aims. They agreed on a new production-cuts package to replace one that was due to expire at the end of 2018.
Set to run for an initial six months, it will take 1.2 million barrels a day out of production.
Although this amounts to just about 1.2% of total production, supply and demand is very closely balanced, at about 100 million barrels a day, so quite small changes in supply can have a big effect on the price.