After sinking last week, oil prices witnessed a rebound because of OPEC’s supply cuts and the growing possibility for a resolution to the US-China trade dispute. The US and China are nearing a deal that would roll back tariffs. This has assuaged fears that their standoff will weigh on global growth and adversely affect fuel demand.
The bounce in the oil prices is largely being seen as a result of the growing anticipation that US and China could soon reach a formal agreement that would end their trade war that had slashed down economic growth. In the US, there are signs that the oil production boom might slow down. The number of oil rigs looking for new reserves was cut by US energy firms last week to the lowest.
Drilling activities in the US are slowing, but the output is still rising. Even though the output exceeded earlier projection, the production surged in November and dipped in December (according to the Department of Energy’s first reading for the month). Hedge funds and other money managers raised their net long positions on Brent crude by 15,887 contracts to 291,336 in the week of February 26.
The sentiment is turning positive, which can be seen in the fresh longs starting to return in the market in the more recent weeks. However, pressure on the demand side may put a cap on further rises. Refineries are also winding down for maintenance, indicating softer crude offtake by refineries and softer signals for crude oil prices.
The gains stumbled a bit for crude when the US stock market slumped on weak construction. U.S. West Texas Intermediate crude settled 79 cents higher at $56.59 per barrel, posting a 1.4-percent gain on the day. WTI earlier rose as high as $57. International benchmark Brent crude futures rose 60 cents at $65.67 a barrel, off a session high of $66.34.
The highlight here is that on Monday, US and China were seen close to a deal that would roll back US tariffs on Chinese goods priced at least $200 billion. According to reports, China is also expected to make structural economic changes and end tariffs on the US.
In February, crude supply from OPEC fell to a four-year low, as per a survey by Reuters. This was a result of Saudi Arabia’s top exporter cutting production more than what it had agreed to and US sanction of Venezuela. The figures of this survey are estimates that were released ahead of OPEC’s official production figures, which will be released next week. But these cuts have enabled crude prices to rally more than 20% this year.
OPEC and its partners — known as OPEC+ — are likely to frame a new output policy in June, instead of the group’s April meeting in Vienna. They are expected to extend the supply reduction pact at this June meeting. However, a lot depends of the extent of US sanction on OPEC members Iran and Venezuela.
