Crude Ekes Out Modest Weekly Gain, But OPEC Warns of Rough Sledding Ahead

Friday August 16, 2019

Despite overwhelming conviction that crude demand will shrink as a result of a global economic downturn, oil prices for the week managed to eke out small gains on Friday after two consecutive weeks of losses - but the Organization of the Petroleum Exporting Countries (OPEC) warned that the remainder of 2019 will continue to be a challenge for the commodity.

Brent ended Friday's session up 41 cents at $58.64 per barrel, and West Texas Intermediate rose 40 cents to settle at $54.87 per barrel, with both benchmarks supported by expectations that central banks will undertake further stimulus to ease recession concerns.

It's unclear why traders responded positively to the notion of bank action considering Friday brought no end of news that would otherwise have been enough to cause cruise price losses, to wit: Wall Street's three main indexes were on track to rack up their third weekly loss, due to worries about a recession and U.S.-China trade tensions.

Also, Baker Hughes data revealed that U.S. energy firms this week increased the number of oil rigs operating for the first time in seven weeks.

However, it is said that OPEC's latest monthly report released Friday went a long way in capping crude gains: the cartel reported that it had cut its forecast for global oil demand growth in 2019 by 40,000 barrels per day (bpd) to 1.10 million bpd and indicated the market will be in slight surplus in 2020.

Additionally, while OPEC left its forecast for 2020 oil demand growth at 1.14 million bpd, up slightly from this year, it warned that its forecast for 2020 economic growth faced downside risk.

The report stated, "While the outlook for market fundamentals seems somewhat bearish for the rest of the year, given softening economic growth, ongoing global trade issues and slowing oil demand growth, it remains critical to closely monitor the supply/demand balance and assist market stability in the months ahead."

Frustration within the crude analytical community is such that some experts decided to blame OPEC for quashing what might have been an impressive Friday trading session: Bob Yawger, director of futures at Mizuho, declared, "OPEC killed the golden goose.

"We've had some little rallies back into the green, as market tries to follow equities higher, but the fundamentals in the report are so bearish that it caps the rallies."

Meanwhile, Phin Ziebell, senior economist at National Australia Bank, worried, "At what point will further output cuts be needed at the back end of this year from OPEC and Russia to keep things going the way they are?"

It could be that trading in the near future may surprise pessimists, however: Friday also saw U.S. president Donald Trump predict that he would speak "very soon" with Chinese leader Xi Jinping.

But Phil Streible, senior market strategist at RJO futures, summarized the sentiment of his colleagues by remarking that, "Many people are still bearish on crude; it will take a deal in writing between the two countries to change the dynamic in market."