Oil prices turned sharply down on Monday, after having reached 2019 highs earlier in the day, as concerns about the global economy resurfaced and a firmer U.S. dollar reduced investors' interest in buying the commodity priced in the U.S. currency.
At 10:20 a.m. EST on Monday, WTI Crude traded down 2.95 percent to US$53.63, while Brent Crude was down 2.18 percent at US$61.38.
Oil prices started the week higher, with both international benchmarks rising early on Monday as OPEC's supply cuts to rebalance the market and the U.S. sanctions on Venezuela's oil combined with a sharp drop in U.S. rigs to give a bullish push to prices.
On Friday, Baker Hughes reported a sharp drop in the number of active oil and gas rigs in the United States last week. The total number of active oil and gas drilling rigs fell by 14 rigs, according to the report, with the number of active oil rigs falling by 15 to reach 847 and the number of gas rigs increasing by 1 to reach 198.
Signs that U.S. shale drilling growth could slow down lent some support to oil prices.
The latest surveys show that OPEC's crude oil production dropped in January by the most in two years-since the initial production cut deal began in January 2017. According to the monthly Reuters survey tracking supply to the market and based on shipping data and information provided by sources at oil companies, OPEC's crude oil production in January was 30.98 million bpd, down by 890,000 bpd from December 2018.
However, amid mixed signals from all sides, analysts see the still insufficient progress in the U.S-China trade talks as weighing on oil prices. A firmer U.S. dollar also played its part in the U-turn in oil prices on Monday.
"Oil prices have lacked direction in today's trading session because of mixed market cues," Abhishek Kumar, a senior energy analyst at Interfax Energy in London, told Reuters.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More
Comments
Still, bullish influences are asserting themselves in the market in the form of a growing global economy, robust fundamentals in the global oil market and growing Chinese imports of crude oil.
And despite claims about a slowdown in the global economy, there is no sign yet to substantiate such claims. The fundamentals of the global economy are still robust in terms of a global economy projected to grow this year at a healthy 3.5%, global oil demand adding 1.4 mbd over 2018 and rising Chinese crude oil imports. Moreover, the OPEC+ production cuts and Saudi Arabia’s slashing of oil exports to the US are starting to do the trick of re-balancing the market and impact on prices.
Furthermore, there are strong indications that both the United States and China are keen on reaching a quick settlement of the trade war between them before the 1st of March.
Another bullish factor is the decision by the US federal Bank to suspend any plans to hike interest rates this year thus removing an adverse impact on global oil demand.
As for events in Venezuela, the global oil market has so far been unmoved by the US sanctions. Furthermore, these sanctions will hardly impact on the global oil market and prices unless there is a complete collapse of Venezuela’s oil industry as a result of a general strike by workers of the National Oil Company of Venezuela, PDVSA, or a civil war. These sanctions are doomed to fail like the ones imposed on Iran.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London