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Oil dips as economic slowdown dents demand, despite tight supply

Oil dips as economic slowdown dents demand, despite tight supply

Mubasher: Oil prices fell on Monday, pressured by worries that a global economic slowdown may keep a lid on fuel demand.

This came despite a tightening supply resulted from cuts led by the Organization of Petroleum Exporting Countries (OPEC) and US sanctions against Iran and Venezuela lent some support.

By 9:00 am GMT, global benchmark Brent futures declined 0.21% to $67.02 per barrel (pb), while US Nymex crude futures fell 0.39% to $58.29 pb.

“The market sits in limbo as it searches for direction,” Singapore-based Starfuels broker Matt Stanley told Thomson Reuters.

 “The greatest downside risk to our oil price view is demand weakness on slower economic growth,” Bernstein Energy analysts said.

“Our base case is that global oil demand will increase by 1.3 million barrels per day (bpd) in 2019 [although a] global slowdown in growth could push global demand growth to below 1 million bpd,” Bernstein added.

US manufacturing output declined for the second month in a row last February, indicating an ongoing slowdown in the first quarter.

In the same vein, Japanese exports dropped for the third consecutive month last month, signalling a growing pressure from a slowing global demand.

That said, crude prices have gained about a quarter since the start of this year amid US sanctions against oil-rich Iran and Venezuela, and an agreement by an OPEC-led group of major producers, including Russia to withhold 1.2 million bpd to shore up the market.

A balance in the oil market was far from done as stockpiles were still high, according to OPEC’s de-facto leader Saudi Arabia.

Moreover, Russia said that the supply curbs would remain in effect at least until next June.

This drove Bernstein to project an inventory draw of 37 million barrels in the first quarter for the members of the Organisation for Economic Co-operation and Development (OECD).

As far as the supply and demand balance is concerned, crude production in the US surged by nearly 2 million bpd over the last year, owing to a shale boom.

Despite the number of oil rigs in the US has been fading since the start of this year, having hit its lowest level since April 2018 last week, US crude production still rose at the beginning of this year, reaching a record 12.1 million bpd last month.