Market Report & Analysis for 1/21/2019 Morning Edition
Morning Market Overview
New York Mercantile Exchange nearest delivered oil futures and Intercontinental Exchange Brent crude settled mixed, with the gasoline contract bucking the decline by crude and ULSD futures to settle at a one-week high. Oil futures were under pressure Thursday as concern slowing world economic growth would dent global oil demand reemerged as the market contemplated a slowdown in the German economy linked to a decline in trading with China.
The decline in German export sales turned the focus to the U.S.-China trade dispute that has slowed world trade and the Chinese economy, with China’s manufacturing sector contracting in December. Earlier this week, Beijing announced a 1.2 yuan stimulus package for this year to boost slowing economic growth, which rallied oil futures and equities on Tuesday. Senior Chinese trade officials will meet with their U.S. counterparts in Washington, D.C. on Jan. 30-31, with China’s chief trade negotiator, Vice Premier Liu He, to attend.
The talks follow a three-day meeting in Beijing between midlevel trade representatives earlier this month. Both countries face high stakes in their need to reach an agreement by March 1, the final day of a 90-day truce in their trade dispute agreed to by U.S. President Donald Trump and Chinese President Xi Jinping.
Reports indicate the Trump administration has already filed the necessary paperwork to lift tariffs from 10% to 25% on a slew of Chinese imports on March 2, with China expected to respond with retaliatory action. Easing West Texas Intermediate and Brent futures also follow OPEC’s MOMR showing OPEC crude production plunged 751,000 bpd from November to 31.578 million bpd in December, the lowest OPEC output rate since September 2015. The steep monthly decline was led by Saudi Arabia, where production dropped 468,000 bpd from an 11.021 million bpd record high in November to 10.553 million bpd.
The large cut came in ahead of a six-month production agreement that took effect Jan. 1 reducing OPEC output by 800,000 bpd. Brent’s premium to WTI futures widened slightly to a $9.11 bbl one-month high at settlement, reflecting lower OPEC output and increases in U.S. production.
The contango in Brent’s forward curve has also eased, with March delivery moving into a $0.02 premium to April at settlement, suggesting world oil supply is tightening. This dynamic follows news earlier this month that the Saudis would reduce their exports by 800,000 bpd from November to 7.1 million bpd in February.
