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Brent climbs after producers seal supply cut deal; outlook dims

Brent climbs after producers seal supply cut deal; outlook dims

Mubasher: Brent crude oil prices rose on Monday after the Organization of Petroleum Exporting Countries (OPEC) and some allied producers agreed on supply cut on Friday, starting next year.

However, the outlook for next year remained muted, driven by the global economic slowdown.

By 7:58 am GMT, global benchmark Brent futures rose 0.68% to $62.09% per barrel (pb), whereas US Nymex crude futures fell 0.11% to $52.55 pb.

Prices jumped on Friday following OPEC members and non-OPEC producers, including Russia, announced that they would reduce oil supply by 1.2 million barrels per day (bpd).

OPEC members planned to cut 800,000 bpd, while allied producers would reduce 400,000 bpd.

The OPEC-led supply curbs would be made as from next January measured against last October output levels.

In the same vein, the shutdown of Libyan oilfield El Sharara, which supplies 315,000 bpd, also supported Brent prices.

On the other hand, surging US production weighed on Nymex crude, as the American oil sector would not take part in the announced supply cuts.

The supply curbs would be enough probably to strike a balance in the market during the first half of the next year and prevent stockpiles from surging, US bank Morgan Stanley said, predicting Brent to hit $67.5 pb by the second quarter of the next year, down from $77.5 pb before that.

However, some analysts argued that the cuts would not be enough to end a market glut.

“The scale of the cuts [...] isn’t enough to push the market back into deficit,” Emirates NBD bank commodity analyst Edward Bell said in a note on Sunday, predicting “a market surplus of around 1.2 million bpd in Q1 with the new production levels.”

Moreover, Oil prices plunged since October on indicators of an economic downturn, with Brent losing around 30% in value.

Japan, the world’s third largest economy and the fourth biggest oil importer, on Monday saw its revised gross domestic product (GDP) at an annualised rate of minus 1.2%.

The US and China are embroiled in a trade conflict which is dragging global growth down and battering investor confidence.

Nevertheless, amid expectations of a slowdown, physical demand on the ground remained healthy.

Crude imports by China, the world’s largest oil consumer, rose 8.5% year-on-year over the weekend to 10.43 million bpd, the first time shipments to China stood at more than 10 million bpd.