After starting the New Year in the red, crude oil stabilized higher today on reports that China plans to hold talks with the United States next week to settle their trade balance differences, Reuters reports.
The trade war between Washington and Beijing was one of the biggest reasons for heightened uncertainty around oil prices as China is one of the world’s top importers of the commodity and any sign that demand for it might waver immediately puts pressure on prices. Another cause for concern has been the ripple effect of the trade war on other economies.
Another reason was OPEC+’s latest agreement to cut production, which as usual led to doubts that the cartel will live up to its promise. However, judging by reports from earlier this week that Saudi Arabia had reduced its oil exports in December by half a million barrels daily, the entry into effect of the cuts on January 1 would have a positive effect on prices. The Saudi exports news immediately pushed Brent and WTI higher, albeit temporarily as concerns persisted.
These concerns have to do with the global economic growth outlooks released by a number of authoritative sources last year. All these outlooks seem to suggest that a slowdown in economic growth is ahead, which naturally depresses expectations for oil demand. Economic activity data releases from China have not helped to alleviate these worries, contributing to the losses suffered by oil.
U.S. production is the other factor everyone will be watching this year. It has been on a steady and strong rise that has sparked doubts whether OPEC+ cutting 1.2 million bpd of production would be enough to offset the U.S. output rise. Some analysts have even suggested that OPEC should cut for longer than the agreed six months to June this year if they are to prop up prices.
By Irina Slav from Oilprice.com
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