Oil slides for second day as US/China trade war drags on
Brent crude falls below $62 ahead of anticipated rise in demand as trade talks continue
Oil prices fell for a second day on November 19, with the prospect of rising supply as demand hinges in large part on the resolution of the trade war between the US and China.
crude futures were trading around $61.76 a barrel by mid-afternoon, down 1 per cent from November 18 and down 2.5 per cent from close on Friday November 15. The price has gained more than 10 per cent since early October.
The US and China have been locked in a trade war for the better part of 18 months. US President Donald Trump has repeatedly accused China of unfairly weakening its yuan currency in order to keep its exports competitive.
Washington and Beijing are expected to sign a preliminary agreement that could mean the US government rolls back some of the duties it has imposed on Chinese goods. As a result of the optimism surrounding a possible thaw in tensions, global equities have hit multi-year highs and oil has rallied almost consistently for the past eight weeks.
“Energy traders will continue to look for positive boost with demand once the US and China phase-one deal is signed,” said OANDA market analyst Ed Moya.
“It seems in the short-term oil prices could see some support this week if we don’t see US oil inventories deliver a larger than expected build that tops 3 million barrels,” he said.
According to Reuters, US commercial inventories of oil are expected to have increased by 1.1 million barrels in the latest week, based on weekly data due from the American Petroleum Institute, in a sign that the world’s largest producer is seeing supply pile up at home.
With production around the world, from the United States to Norway and Brazil, rising faster than refineries can process it right now, oil has struggled to hold above $70 this year.
Thanks to the efforts of the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and some rival exporters, such as Russia, Kazakhstan or Oman, in cutting output, the oil price has still managed to rise by nearly 15 per cent so far in 2019.
The International Energy Agency said in its monthly oil market report that it expects global oil demand to grow by 1.2 million barrels per day next year, marginally above this year’s projected rate of 1.1 million bpd. By contrast, it expects supply from countries outside of OPEC, which account for around 60 per cent of global production, to grow by 2.3 million bpd.
A market in surplus is generally price-negative, but with the global economy slowing at the same time, oil is more protected from the sudden price shocks that can occur when geopolitical tensions flare up.
“... a continuously well-supplied market will lend support to a fragile global economy,” the IEA said.