Oil holds drop on doubts over Opec curbs and US supply threat

11th December 2018

By: Bloomberg

  

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Oil held its biggest loss in two weeks as uncertainty over how the Opec+ coalition will implement its output cuts and the prospect of surging US supplies kept investors wary.

Futures in New York were little changed, after Monday’s 3.1% drop erased gains following last week’s pact between Saudi Arabia, Russia and other major producers to curb output. While the group’s cuts will initially reduce inventories and drive prices up, that can spark production in the US, according to Citigroup Inc. Meanwhile, American oil explorers are already making plans to boost their spending in 2019.

Crude has slumped about 30% from a four-year high in early October, with volatility reaching the highest level in more than two years last month. While analysts from Goldman Sachs Group Inc. to Morgan Stanley are optimistic the Opec+ curbs will bring some relief to the market, they raised concerns over the effectiveness of the pact in the longer term. Meanwhile, China’s vice premier discussed a timetable and road map on trade talks with his US counterpart.

“Opec+ cuts alone may not have been enough to completely convince investors,” said Sungchil Will Yun, a senior commodities analyst at HI Investment & Futures Corp., said by phone from Seoul. “We’re seeing volatility for now and there are some global uncertainties ahead of us such as trade tensions that may suppress demand coupled with potential American supply increase, both bearish for prices.”

West Texas Intermediate for January delivery was at $51.12 a barrel on the New York Mercantile Exchange, up 12 cents, at 1:02 p.m. in Singapore. Prices dropped 3.1% to $51 on Monday, the biggest loss since Nov. 23. Total volume traded was 9% above the 100-day average.

Brent for February settlement increased 15 cents to $60.12 a barrel on London’s ICE Futures Europe exchange. Futures settled 2.8% lower at $59.97 on Monday. The global benchmark crude traded at $8.81 a barrel above WTI for the same month.

The oil market will need repeated output cuts from the Organization of Petroleum Exporting Countries and its allies to offset growing American crude production as the group’s pledged reduction of 1.2-million barrels a day is “really a significant number” that will support prices, Citigroup’s global head of commodities research, Ed Morse, said in a video posted on its website.

“Oil hits $70 to $75 a barrel and US production starts soaring, and US exports start soaring again, and the countries involved in production cuts have to meet again to rein in production,” he said.

Meanwhile, American oil drillers including Hess Corp. are planning a spending hike next year, while ConocoPhillips pledged to maintain its 2018 level, the companies said in separate statements on Monday. Crude explorers globally are estimated to increase spending by 8% to $484-billion in 2019, led by supermajors, according to Evercore ISI.

Edited by Bloomberg

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