Oil Market Roundup - Friday Week 2

Friday January 11, 2019

Persistent worries about a global economic slowdown finally dominated traders' concerns and ended crude's 9 day winning streak on Friday - although both benchmarks still achieved a second week of gains, with West Texas Intermediate and Brent up about 7.5 percent and 6 percent respectively.

Amid news that China plans to set a lower economic growth target of 6-6.5 percent in 2019 compared with 2018's target of around 6.5 percent (according to sources who spoke to Reuters), WTI ended Friday's session down $1 to $51.59 per barrel; Brent fell $1.15 to $60.53 per barrel.

Another driver of bearish sentiment - rising global output and inventories - took a back seat on Friday due to conflicting messages from different sources, ie: while JBC Energy said it was likely that U.S. production was "significantly above 12 million barrels per day [bpd]" by this month, Baker Hughes data showed that U.S. energy firms this week cut four oil rigs for a second week of declines - an indication that drilling plans are being downsized because of uncertainty over a recovery in crude prices.

But even though Friday represented an end to crude's winning streak, the momentum gained by the commodity in the new year bodes well for the rest of2019, according to Mark Waggoner, president of Excel Futures Inc.

Waggoner told media that the evidence for a sustained move higher is getting harder to ignore: "Just having another positive week is going to be huge for a lot of people's psyches, after we got so beat up last year; I think you're going to see more of them coming on board next week."

Indeed, Bloomberg noted that hedge funds this week slashed bets on falling Brent crude prices to the lowest level since mid-November, and wagers on increasing prices climbed the most in a month; the ICE Futures Europe exchange on Friday also reported that Brent net-long positions climbed 3.8 percent to 158,146 options and futures contracts in the week ending January 8.

Another positive sign for a bullish movement is Russia, which frequently voiced its reluctance to go along with the Organization of the Petroleum Exporting Countries (OPEC) plan to slash crude output: Alexander Novak, energy minister for the former Soviet Union, on Friday disclosed that preliminary data shows the nation's output has already fallen by more than 30,000 bpd relative to October levels: "The companies have said they can decrease total production by 50,000 barrels per day in January."

Russia has agreed with OPEC to gradually cut 228,000 bpd by the end of the first quarter.

So, what does this mean for prices moving forward? Phil Streible, senior market analyst at RJO Futures, told Bloomberg television that $60 is a good average price for 2019: "I think OPEC will wind up getting their way and prop prices up despite U.S. production."