Crude oil futures resumed their upward trajectory in morning trading in Europe Tuesday despite an absence of clear bullish sentiment, with analysts saying the rise appeared to be an adjustment following steep losses at the end of the previous week.
At 1206 GMT January ICE Brent crude futures rose 12 cents/b from Monday’s close to $60.35/b while the NYMEX January sweet light crude contract climbed 4 cents/b to $51.67/b.. Analysts displayed doubts about the longevity of the increases.
“Any lasting price recovery would require clear signals from oil producers ahead of next week’s OPEC+ meeting that they are willing to cut production significantly,” analysts at Commerzbank said in a research note. “The news that came out of Saudi Arabia yesterday did not really fit in with this picture.” According to analysts from Societe Generale, OPEC crude production had risen by 900,000 b/d from May to October, largely led by a 600,000 b/d increase from Saudi Arabia.
“I think there has been a rush to produce more crude ahead of what were thought to be very tough Iran sanctions and then [US President Donald] Trump loosened them and there was this sudden and temporary surplus,” Peter Stewart, Chief Energy Analyst at Interfax Global Energy Services, said.
After the US granted exemptions for consumers of Iranian oil Saudi Arabia’s oil production should have decreased again but it did not and this could be interpreted as an attempt by Saudi Arabia to appease Trump, Commerzbank analysts said.
Trump has spoken in favor of lower oil prices in the past. “I don’t think demand is slowing, if anything it is on the up. I don’t think there has been enough investment in the last three or four years, especially after the 2016 drop in production, in order to produce enough new crude to meet that future demand,” Stewart said.
The main driver of healthy demand will be emerging markets, including China and India, Societe Generale analysts said. “Given that the global economy is losing momentum, especially outside the US, oil markets are worried about demand weakness developing. However, there is little evidence of this so far,” they said.
Uncertainty is set to dog the market, at least in the short term. The outcome of expected meetings between representatives from Saudi Arabia and their colleagues at other oil-producing nations, including Russia and Iran, in the coming days is unclear. “It is unclear if people will say, ‘let’s work together strategically’ or to jockey for position,” one analyst said. Platts.com
Pix: Crude oil pipeline
