Oil prices have been trending upward over the last two months, up around 22 percent since the start of the year. Much of this upward support on prices comes from the OPEC+ deal to trim 1.2 million barrels per day (bpd) from global production, as well as geopolitical problems hitting Venezuela's and Libya's oil production as well as U.S. sanctions eating into Iranian exports.
The elephant in the room has been and will continue to be, stellar U.S. production, which backed by production from the Permian Basin, has reached 12.1 million bpd. The problem with U.S. oil output, at least for OPEC and other producers, is that American producers are prohibited by strict antitrust laws at collectively managing output, or even discussing it among themselves or with outside producers, like OPEC.
However, Thursday morning more developments broke that will weigh on oil prices. On Thursday, President Trump said that his summit with North Korean leader Kim Jong Un had failed to reach an agreement due to North Korean demands to lift U.S.-led sanctions in their entirety. North Korean has pressed before in the past to have sanctions lifted before the country showed any evidence that it was eliminating its nuclear and ballistic missile development programs. The U.S. has long maintained that real and verifiable progress must be made before crippling sanctions are lifted.
UN and U.S. sanctions were increased in 2017 when North Korea undertook a series of nuclear and missile tests, including firing missiles over parts of Japan, with some analysts also claiming at the time that North Korean missiles could possibly reach targets in the U.S. Related: The Top Geopolitical Trends Of 2019
"Basically, they wanted the sanctions lifted in their entirety, but we couldn't do that … we had to walk away from it," Trump told reports in Hanoi, the site of the summit after the meeting was cut short. However, at the end of the day, North Korea's demand that sanctions not only be lifted but be lifted in their entirety is likely a ploy by the North Korean side, that is known for its unrealistic demands in bargaining. How this will play out in the future is unclear.
Trump for his part, needed an international win to offset a plethora of problems in Washington, and entered the summit with lower expectations, indicating that he would be happy to just keep the dialogue going. North Korea, for its part, likely used this weakness to make an offer that Trump would be unwilling and unable to grant - potentially pushing the two sides back to the brinkmanship experienced over one year ago.
More headwinds
Also, on Wednesday, hopes that a new trade deal between Washington and Beijing diminished when U.S. Trade Representative Robert Lighthizer said it was too early to predict an outcome in talks between Washington and Beijing. U.S. issues with China are "too serious" to be resolved with promises from Beijing to purchase more U.S. goods and any deal between the two countries must include a way to ensure commitments are met, he told U.S. lawmakers. Related: 5 Giant Game-Changing Energy Trends To Watch
Weakening factory output in China and Japan also dragged down oil prices on Thursday. London-traded, international oil benchmark Brent crude futures were at $66.15 per barrel at 02:48 GMT, down 24 cents, or 0.4 percent from their last close. U.S.-oil benchmark, NYMEX-traded West Texas Intermediate (WTI) crude oil futures were at $56.92 per barrel, down 2 cents from their last settlement.
Factory activity in China, the world's biggest oil importer, shrank for the third straight month in February, a Reuters report said. China's official manufacturing gauge fell to a three-year low, highlighting deepening cracks in an economy facing persistently weak demand at home and abroad. In Japan, Asia's second-biggest economy, factory output posted the biggest decline in a year in January as China's slowdown affects the entire Asia-Pacific region.
By Tim Daiss for Oilprice.com
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I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets… More
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