Crude Oil Price Update – Supported by Expected OPEC+ Cuts; China Tariff ReductionA technical committee advising OPEC and its allies led by Russia, known as OPEC+, has agreed to recommend a provisional additional cut in oil output of 600,000 barrels per day (bpd)
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Thursday, but off their highs. The price action suggests there is a slightly bullish tone underpinning the markets, but that buyers are still reluctant to chase prices higher.
This is understandable given that additional production cuts from OPEC and its allies are potentially bullish, while rising U.S. inventories are likely to cap gains.
Multiple Factors Contribute to Early Strength
Crude oil futures rose for a second day on Thursday, boosted by potential OPEC+ action to counter oil demand loss from the coronavirus outbreak and by optimism that trade tensions between China and the United States were easing.
OPEC+ Production Cuts
A technical committee advising OPEC and its allies led by Russia, known as OPEC+, has agreed to recommend a provisional additional cut in oil output of 600,000 barrels per day (bpd) as it awaits the final position of Russia on the proposal, two sources told Reuters.
If adopted at a future meeting of OPEC+, the total size of the output curb from the group would rise to 2.3 million bpd.
“Saudi Arabia seems ready to push a very proactive and immediate production response,” bank RBC said in a note.
US Energy Information Administration Weekly Inventories Report
Data from the U.S. Energy Information Administration (EIA) showed crude inventories rose by 3.4 million barrels during the week-ending January 31, higher than forecast. Traders were looking for a 3.0 million barrel build.
Gasoline inventories fell 100,000 barrels during the last week of January. Gasoline production in the seven days to January 31 averaged 9.9 million bpd, versus 9.2 million bpd a week earlier.
Distillate fuels fell 1.5 million barrels last week. Distillate fuel production last week averaged 5 million bpd, down from a week earlier.
China Cuts Tariffs
China on Thursday said it would halve additional tariffs levied against 1,717 U.S. goods last year, following the signing of a Phase 1 trade deal between the two countries. This helped drive prices higher earlier in the session because it makes China’s goal to increase its U.S. purchases to $200 billion over the next two years more achievable.
Crude oil prices broke a ten-day losing streak but this doesn’t mean the trend is changing to up. Momentum, however, could continue to rise if the emergence of positive news about controlling the coronavirus continues to drive demand for risky assets.
The economic slowdown resulting from the outbreak is expected to reduce 2020 global oil demand growth by 300,000-500,000 barrels per day (bpd), roughly 0.5% of global demand, BP’s Chief Financial Officer Brian Gilvary said on Tuesday.
Nonetheless, the futures markets are anticipatory so favorable news in relation to potential medical solutions, or indications that we have reached a turning point in the progress of the virus outbreak, could have a favorable impact on prices.