Oil prices slip even as Opec extends output cuts

Signs of global economic slowdown, which may hit oil demand growth, weigh on deal by Opec and its allies

NEW YORK • Oil prices slipped on Tuesday as concerns that the global economy could be slowing outweighed an agreement by Opec and its allies, including Russia, to extend supply cuts until next March.

Brent crude futures were down 49 US cents, or 0.75 per cent, at US$64.57 a barrel by 1340 GMT.

US crude futures for next month were down 58 US cents, or 0.98 per cent, at US$58.51 a barrel, after touching their highest in more than five weeks on Monday.

The Organisation of the Petroleum Exporting Countries (Opec) along with other top producers, including Russia, agreed on Tuesday to extend oil supply cuts until March next year as members overcame differences to try to prop up prices.

Meanwhile, US crude oil stockpiles were seen falling for a third consecutive week, a preliminary Reuters poll showed on Monday, also supporting prices.

But signs of a global economic slowdown, which may hit oil demand growth, mean Opec and its allies may face an uphill battle to shore up prices by reining in supply.

"It was the bare minimum Opec could agree on in order to prevent a major meltdown in prices. Member countries noted that global oil demand growth for this year has fallen to 1.14 million barrels per day (mbpd) while non-Opec supply is expected to grow by 2.14 mbpd," PVM analyst Tamas Varga wrote in a note.

"It appears that the supply side of the oil equation is supportive for oil prices but demand concerns are forcing oil bulls to keep at least part of their gunpowder dry."

The United States and China agreed at the Group of 20 summit to restart trade talks, but factory activity shrank across much of Europe and Asia last month while growth in manufacturing cooled in the US.

Asian shares wobbled on Tuesday, US Treasury yields fell and gold rebounded, while a tweet by US President Donald Trump saying any trade deal with China would need to be "somewhat tilted" in favour of Washington also stoked doubt over prospects for a trade deal between the top two economies.

"Oil traders will now turn their attention to the economic data, as the weakening global activity and waning demand could again weigh on the sentiment," said Ms Ipek Ozkardeskaya, a senior market analyst at London Capital Group.

REUTERS

A version of this article appeared in the print edition of The Straits Times on July 04, 2019, with the headline 'Oil prices slip even as Opec extends output cuts'. Print Edition | Subscribe