Oil prices teetered between slight gains and small losses on Monday on OPEC production cuts, but data showing a slowdown in China somewhat dampened investors’ enthusiasm. ConocoPhillips photo.
Gains in oil prices reined in by Chinese slowdown
Oil prices were steady in trading on Monday as rising investor confidence on the OPEC supply cut agreement met with concerns about slowing growth in China.
By 1:36 p.m., EST, benchmark Brent crude futures were down 12 cents to $62.58/barrel while US West Texas Intermediate futures rose 18 cents to $54.22/barrel.
According to analysts, more robust financial markets coupled with OPEC supply cuts helped buoy oil prices on Monday.
“The stock market performance is one of the reasons why oil keeps marching higher. There also seems to be a general belief that the agreed cut in OPEC+ production will be sufficient to balance the market,” Reuters reports PVM Oil Associates said in a note.
After data showed Chinese economic growth has slowed to a 28-year low, global equities fell. With the United States and China still struggling to resolve trade tensions, concern over global growth continues to rise.
Despite this anxiety, stocks are up about 8 per cent so far in January, giving oil investors more confidence to bet on a rise in oil prices.
“It remains quite likely that the trade spat with the U.S. has played a part in this latest slowdown,” CMC Markets chief market analyst Michael Hewson told Reuters.
“But investors should also factor in that it simply isn’t possible for the Chinese economy to grow at the pace that it has over the last 10 years, in the next 10 years.”
The slowing global economy is expected to impact oil demand, however, OPEC’s most recent production cut agreement will likely underpin oil prices, according to analysts.
“You can’t justify oil prices at these levels. We’re looking basically at an average of almost $70 a barrel for Brent in 2019,’ ING commodities strategist Warren Patterson told Reuters.
“I am getting increasingly concerned about how tight the market will be going into 2020.”
In a separate report from China’s National Bureau of Statistics released on Monday, crude oil refinery throughput last year rose to a record high 12.1 million barrels per day, up by 6.8 per cent over 2017.
On Friday, Baker Hughes reported the US rig count fell to 852, the lowest since May 2018. In Canada, the oil rig count rose by 28 to 128.