Oil looks for stability after Opec+ production cuts

Abu Dhabi: Oil prices were down on Monday, despite a new round of production cuts announced by Opec+ last week, highlighting how the body’s decision will more than likely stabilise prices instead of sending them up said analysts.

Brent crude was down 1.07 per cent at $63.70 (Dh233) with West Texas Intermediate (WTI) also down 1.13 per cent on $58.53 by 4pm UAE time, with markets reacting negatively to weak data coming out from China showing exports were down for the fourth straight month.

The Opec+ countries agreed in Vienna last week to new production cuts of 500,000 barrels per day (bpd), adding to their already existing cuts of 1.2 million bpd, with the new round of cuts set to kick in from the start of next year.

“The larger cuts agreed for Q1 [first quarter of 2020] are not far off a scenario we outlined in our Oil 2020 Outlook and would bring the market closer to balance on average for 2020 but won’t prevent a surplus developing in H1 [half year],” said Edward Bell, commodity analyst at Emirates NBD.

“The statement from Opec+ also implies the deeper cuts will only be in effect for Q1 and then evaluated for extension at a market monitoring meeting. Our assumption would be that the cuts would need to be extended in order to prevent Opec+ from keeping the market in surplus,” he added.

Bell said prices would most likely remain within the $60 (Dh220) range as a result of the new production cuts, as economic volatility continues to weigh down on prices – in particular the ongoing US-China trade war.

“Oil prices rose in response to the news that Opec+ agreed on deeper cuts but remain bound in the $60-65/barrel range where they have spent much of the past month.

“Longer-dated pricing is anchored at lower levels. Brent December 2020 contracts have been holding a little under $60/b for most of the second half of 2019 with WTI contracts for the same month around $55/b,” he added.

“In light of the deeper cuts announced by Opec+ we still view our oil price assumptions for 2020 as appropriate although we note there may be some upside volatility provided compliance is strong across all producers,” Bell said.