Oil prices rise over 1%, but global slowdown looms

LONDON (Reuters): Oil prices rose more than 1% yesterday after tumbling the previous session, although a darkening economic outlook may soon weigh on growth in fuel demand.

Brent LCOc1 was up 78 cents or 1.32% at $ 59.77 per barrel by 1240 GMT, after briefly climbing above $ 60. The benchmark crude had fallen more than 2% on Monday.

US crude CLc1 was up 63 cents or 1.25% at $ 51.14.

Prices fell on Monday after data showed weakening imports and exports in China, raising new worries about a global slowdown. But China’s National Development and Reform Commission offered some support yesterday, signalling that it might roll out more fiscal stimulus.

But analysts said a price recovery may prove short-lived.

“Any price rally is unlikely to be sustainable in the first half of the year simply because the demand for OPEC’s oil is expected to be lower than the projected output from the organisation,” PVM Oil Associates strategist Tamas Varga said.

The Middle East-dominated Organization of the Petroleum Exporting Countries, and allies including Russia, agreed in late 2018 to cut supply to rein in a global glut. The cuts were effective from January.

Further help has come from Friday’s data showing the number of US rigs looking for new oil production dipped to 873 in early 2019.

This could rein in the swift rise in output from the US, which became the world’s top oil producer in 2018. 

“OPEC-led cuts and declining US rig counts have bolstered market sentiment in the new year,” Singapore-based brokerage Phillip Futures said.

Falling oil exports from Iran due to US sanctions that were re-imposed in November have also offered some support to crude prices, although Washington has granted sanction waivers to allow Iran’s main customers, mostly in Asia, to import some oil.

Japan expects to restart oil imports from Iran as early as this month, the Nikkei business daily reported yesterday, with some Japanese banks notifying customers they will resume transactions for oil purchases.

South Korea expects to receive Iranian oil imports in January after a four-month interruption.

HSBC said it was cutting its average 2019 Brent price forecast by $ 16 per barrel to $ 64 per barrel, citing the rise in US production and an “increasingly uncertain demand backdrop”.