While crude futures settled higher on Friday, a day after an attack on two tankers in the Gulf of Oman, reality hovered in the background in the shape of yet another downgrade in the global oil demand projections for 2019.
The attacks triggered concerns about interruptions in the flow of oil around the globe and prompted a rally in prices but the latest forecast from the International Energy Agency (IEA) and the looming OPEC meeting next week saw traders and analysts wonder whether higher prices are sustainable.
At the heart of the lowered forecast from the IEA is the sluggish global economy – especially in China, elsewhere in Asia and Europe, along with continuing near record production in the US.
Despite the rises at the end of last week, oil futures suffered a loss for the week.
In New York, West Texas Intermediate crude for July delivery closed up 23 cents, or 0.4%, at $US52.51 a barrel on Friday.
The tanker attacks drove a 2.2% gain for oil on Thursday, but prices failed to recover the 4% loss from Wednesday. The front-month contract price lost 2.7% for the week.
In Europe, August Brent crude futures added 70 cents, or 1.1%, to $US62.01 a barrel after Thursday’s 2.2% rise. Again that spike was not enough to offset earlier losses and Brent finished down 2% for the week.
The stronger US dollar on Friday didn’t help oil market sentiment either.
In its latest monthly report on Friday, the IEA cut its global oil demand growth forecast and said there’s ‘plentiful’ supply to meet that growth.
The agency cut its 2019 forecast for global oil demand for a second straight month, blaming, in part, the slowing global economy.
The agency cut its oil demand growth forecast to 1.2 million barrels a day from 1.3 million barrels a day the previous month. OPEC also cut its forecast for growth in world oil demand this year, as have other forecasters.”
“Meeting the expected demand growth is unlikely to be a problem,” the IEA said. “Plentiful supply will be available from non-OPEC countries,” with the US contributing 90% of this year’s 1.9 million barrel a day increase in supply and most of that coming from the shale sector.
For 2020, the IEA said oil demand is expected to climb by 1.4 million barrels a day, with nonmembers of the Organisation for Economic Cooperation and Development (OECD) the main drivers of demand growth, although OECD countries are forecast to contribute a significant 520,000 barrels a day on the back of the expansion of petrochemical demand in the US.
The Energy Information Administration on Wednesday another rise in US oil stocks to 485.5 million barrels, 8.5% above the five-year average and the highest since 2017., Estimated daily production eased to 12.3 million barrels a day from 12.4 million (which was probably too high).
Daily production has been in the range 12.0 to 12.3 million barrels a day for most of the past couple of months.
The weekly report from Baker Hughes on Friday, though showed another fall in the number of rigs actively looking for oil. The number fell by 1 to 788, 95 less than last December and the total number of rigs dropped 6 to 969 – five years ago the number was over 1,400.
The market is also awaiting a decision by OPEC and its allies this week’s meeting on whether to extend their production-cut deal past the end of this month when it expires. The current price weakness will almost certainly see some sort of cap remain. The meeting of the US Fed this week could also influence oil prices.
In metals, Comex gold futures gave up much the early gains on Friday, as a stronger US dollar and easing fears about oil shipments in the Gulf of Oman helped dampen the flight to safety triggered by Thursday’s tanker attacks.
That saw gold post only a modest gain for gold for the session, which ended down significantly from the highest intraday level in 14 months.
Prices eased back from the session’s highest levels with the dollar rising (pushing the Aussie dollar well under 69 US cents) and pressuring US dollar commodity prices, starting with gold (and oil).
Comex gold for August delivery added 80 cents, or nearly 0.1%, to settle at $US1,344.50 an ounce. That was down 0.1% for the week according to FactSet data show.
Prices had climbed to as high as $US1,362.20 during Friday’s session, which was the highest intraday since April last year.
Comex July silver fell 8.9 cents, or 0.6%, to $US14.803 an ounce, ending around 1.5% lower for the week.
Comex July copper fell 2.7 cents, or 1%, to $US2.630 a pound, but finished nearly 0.1% higher for the week.
That was a small encouragement seeing the poor Chinese economic data released last week and especially on Friday (See separate story).
