Oil prices are down on Wednesday because of fears that the US-China trade war may trigger a contraction in the global economy. At the same time, tightening the market due to OPEC supply constraints and political tensions in the Middle East provide moderate support to the market.
The futures on US crude oil WTI depreciated by 1.25% to 58.40 USD per barrel, while the Brent variety fell by 0.90% to 69.48 USD per barrel.
Investors are worried about global demand, especially in the context of an escalating trade conflict between the US and China. According to analysts, there is another worrying factor related to the depreciation of emerging markets currencies, which makes oil more expensive for buyers in these countries.
Despite some market concerns, the global oil demand remains at a good level of over 100 million barrels per day, which is achieved for the first time this year, according to data from the Energy Information Administration.
However, the commodity markets remain cautious about the macroeconomic environment in the short-term. The increasing caution and unwillingness to take risks may have an impact on economic growth and thus affect the prospects for crude oil.
Oil stocks at the US hub of Cushing, Oklahoma, have been steadily climbing over the past eight months despite the slight contango market structure, as demand grows for segregated crude storage.
While trade tensions are going to dominate near-term price sentiment of the energy benchmark, a weekly release of the American Petroleum Institute’s (API) and the Energy Information Administration (EIA) crude oil stock for the week ended on May 24 will also be in the spotlight. The industry-based inventory report registered addition of 2.4 million barrels into the stockpile during its latest release.
In spite of all the concerns that weigh on oil markets, oil prices remain relatively tight.
OPEC and its allies must meet in late June or early July to discuss the future of their production policy. Russia hinted that OPEC could extend the period of oil production constraints.
“Russia will consider the possibility of extending the agreed oil cuts with OPEC and other producers”, said the Russian Deputy Prime Minister and Finance Minister, Anton Siluanov. “There are many economic and strategic issues (related to this)”, added he.
The OPEC, Russia and other oil producers, known as OPEC+ group, agreed to cut oil production by 1.2 million barrels per day in the first half of 2019, aiming to balance oil markets and recover commodity prices after the serious downturn experienced by the markets at the end of 2018.
The OPEC+ countries will meet in Vienna in June to discuss the possible prolongation of the production constraints.
It is likely that the meeting in question will be withdrawn at the beginning of the month (June 3-4), representatives of the oil cartel said on Monday.
Meanwhile, Kuwait’s Petroleum Minister Khaled al-Fadhel said he expects the global oil market to be balanced by the end of 2019. According to him, OPEC’s balancing work is not over yet.
More than a week ago, OPEC+ representatives met in Jeddah, Saudi Arabia, to assess the state of the oil market and discuss the plans of the cartel for the rest of the year. The event was held with a focus on the forthcoming meeting of the leaders of the organization in June in Vienna.