The crude oil prices are down on Friday after investors collected their profits, thanks to rising raw materials by more than 2% in the previous session. At the same time, concerns about demand and slowing global economic growth remain. The expectations that the OPEC+ agreement on production cuts will support prices are still retaining.
The futures on US crude oil with delivery in January are down by 0.46% to 52.34 USD per barrel. The price of Brent fell by 0.63% to 61.06 USD per barrel. On Thursday, the prices of the two varieties – WTI and Brent – grew by 2.2% and 2.8% respectively, but on a weekly basis, however, the cumulative falls were 0.3% and 0.9%, respectively.
China, the second largest economy in the world and the largest importer of crude oil, reported the weakest growth in retail and industrial production in November. The data are another signal of the slowdown in the country’s economy.
Production in oil refineries in China registered a decline last month versus October, suggesting that China’s demand for oil will weaken, although annual growth is 2.9%.
Some price support, however, comes from the agreement reached between the Organization of Petroleum Exporting Countries (OPEC) and countries outside the cartel, including Russia. According to the International Energy Agency, shrinking production could lead to a shortage of supplies in the second quarter of the year.
What will happen with crude oil after agreed cuts in OPEC+ production?
The Organization of Petroleum Exporting Countries (OPEC) and its allies have been able to agree last week to reduce oil output by 1.2 million barrels per day, which will come into force from January next year. The agreement also includes a revision of the plan in April, which currently provides for OPEC members to cut output by 800,000 barrels per day, while their partners will cut production by 400,000 barrels, using October production levels as the basis.
Iran has joined Saudi Arabia’s idea of cutting production by agreeing to a symbolic reduction, a strange proposition, due to the fact that production in the Islamic Republic is far below the country’s maximum capacity. Iran has long ruled that it will not sign such an agreement, especially when the country is shaken by US sanctions, which are expected to further reduce oil production in the coming months.
The rumors during the meeting that the arrangement between Riyadh and Tehran would fall apart were not justified. It is hard to imagine that Saudi Arabia will abandon a deal that involves significant declines in production only because Iran will not agree to a symbolic reduction in its exports.
After all, the result was surprising.
All countries took part in the deal, which provided country-specific allowances. Iran has not received a formal “release” from cuts, even when Tehran has requested a similar solution from the cartel.
The question of the inevitable decline in oil production in Iran over the coming months, despite the decision by OPEC and its allies, sank silently during the talks.
Russia has, of course, played a major role in the agreement, and its willingness for the higher-than-expected cuts has been the key factor in the deal.
The deal can be called success for two reasons. First, as of January 2019, the oil markets will have 1.2 million barrels per day less, which will not immediately affect the surplus. Secondly, the reduced yield will remove the vast uncertainty about what can be expected in the near future.
Over the last few months, oil prices have remained volatile. This would allow for a more effective control of surplus and deficit, which will not be as big as to greatly influence the size of the price, at least in the short term.
Rising forecasts for US natural gas production in 2019 keep prices low
The US Energy Information Administration’s short-term energy outlook increases the projection for 2019 natural gas production.
In fact, since September alone, EIA’s National Energy Modeling System has upped its forecast for 2019 output by over 5.3 Bcf/d, or 6.3%. For perspective, this means that the US is now expected to have an additional Niobrara shale’s worth of extra gas supply in 2019 than was expected just a few months ago. That is how fast the shale industry is soaring.
The gas rig count last week was at 198, the highest since early-June. Per EIA, current US gas production stands at around 87 Bcf/d, well above the 78 Bcf/d that we saw this time last year.