Oil prices rose in the first half of February, with the Brent index touching its highest levels so far this year. Gains, however, were hampered when U.S. retail spending fell, sustaining the steepest losses since 2009. Fear among investors of a global economic slowdown may have been the reason.
Rises & Losses As Well
The financial markets started off lower, and stock markets across the world wiped out gains, as the world’s largest economy recorded losses in consumer spending. Poor consumer sales have meant that rises in oil prices have been capped by the selloff that came in response. Selling happened across the board. While there was positive news on the supply side, with several factors pushing prices higher, poor demand outlook outweighed it all.
Further data, showing that Americans were filing unemployment claims at rates greater than any time in the recent past, has meant an additional fall in the outlook for the U.S. economy.
OPEC+ Promises Further Cuts
Prices rose slightly after the markets cut back on some losses and also drew strength from optimism among investors that the trade dispute between the U.S. and China could be resolved. At $64.36, Brent futures were up more than 1%, having briefly hit $64.81 during the day. U.S. crude rose by nearly one percent as well.
With investors expecting that OPEC countries and other closely allied oil exporters would cut back further on their oil exports in order to prop up prices, crude levels on the market have gained as much as 20 percent in 2019. OPEC+, as the cartel together with its allies is known, has publicly announced its intention to cut output by 1.2 million bpd. Saudi Arabia has promised to cut back production even more than it agreed to the announcement.
Prices Remain Strong
According to experts, oil price trends in the medium-term show that the situation isn’t yet free of challenges. However, there will be balance in the supply-demand equation. On average, the Brent index should hover around the $70 mark for all of 2019. Voluntary production cuts by countries such as Saudi Arabia and Kuwait, and involuntary production cuts by countries such as Iran and Venezuela, should ensure that the $70 level is maintained.
China, surprisingly, came up with actions that boosted oil prices greatly in 2019. To begin, there was an unexpected rise in Chinese exports in January, and also a quick rise in crude oil imports in February, ahead of Lunar New Year festivities. Nevertheless, the fast rise in the availability of American shale on the physical market has meant that there has turned out to be a rise in domestic inventories of both crude petroleum and refined products. Data released by the U.S. government in early February has shown that American stocks of crude have risen to levels not previously seen since around November 2017.
Prices Will Continue to Rise
In very early February, U.S. crude oil rose by nearly a dollar. Much of the commodity’s attraction came from the political problems of Venezuela, and the drop in Saudi imports into the U.S. If rises weren’t tempered by fears concerning the U.S. economic slowdown, they could have gone higher.
At the end of January, American crude production was at record levels, at nearly 12 million bpd. Other reports, however, have mentioned that oil drillers would start to take rigs offline starting in March. This could mean that American production will drop, leading to rises in oil prices.
According to Sigma Drilling Technologies, a leader in pulsation solutions, American drillers need to invest in products such as Charge Free technologies to maintain their operations at optimal levels. The dampener manufacturer has further said that the strength of the markets is likely to encourage such investments in the near-term.
