Brent has recovered some ground since the start of the year, despite continued concerns over the state of the world economy.
In demand terms, the upturn reflects hope that the US-Chinese trade war is moving towards a resolution, and that the UK parliament will somehow avert a ‘no-deal’ Brexit before the looming deadline of March 29.
There are also grounds for optimism on the supply side.
Saudi Arabia appears to be acting on the agreement struck in December between OPEC and associated non-OPEC producers with determination. Secondary source estimates put OPEC production down 630,000 b/d in December from November at 32.43 million b/d, the lowest level in six months. Riyadh curtailed its own production by 401,000 b/d, acting one month before it is formally required to do so, with promises of more cuts to come in January.
Activity also appears to be stalling on the US oil patch. There was the sharp drop in the business activity index of the Dallas Fed energy survey for the fourth quarter, and the US rig count trended down in the four weeks to January 18, shedding 25 rigs in the most recently reported week to 852.
Nascent optimism surrounding the external trade environment is not misplaced, but neither an improvement in US-China trade relations nor the avoidance of a hard Brexit are done deals. Both still represent major uncertainties.
Chinese economic growth was reported in January at 6.6% in 2018 in line with…