Oil rose for a second day on signs OPEC and its allies will extend production cuts beyond June, while a steadily deteriorating US-China trade relationship kept prices from pushing higher.
Futures in New York extended their gains after closing up 0.5% on Monday. Saudi Energy Minister Khalid Al-Falih urged the OPEC+ coalition to “stay the course” on output limits after a meeting in Jeddah over the weekend, although his Russian counterpart, Alexander Novak, talked about potentially relaxing the curbs. Asian stocks opened lower after China warned it could retaliate against the US after Washington blacklisted Huawei Technologies Co.
The possible extension of supply curbs by the Organization of Petroleum Exporting Countries and its allies could be a catalyst for oil to resume this year’s rally, which has floundered over the past month.
Rising tension in the Middle East and involuntary output cuts from Venezuela to Russia have also been aiding prices, but the breakdown in relations between the world’s two biggest economies is keeping gains in check.
“OPEC+ is staying on the sidelines for now, reluctant to add significant volumes to markets so long as overall measures of inventories remain apparently adequate,” Citigroup Inc. analysts including Ed Morse wrote in a report. The bank is “cautiously optimistic a trade war today will result in at least an interim trade deal this year.”
West Texas Intermediate crude for June delivery, which expires on Tuesday, rose 22 cents to $63.32 a barrel on the New York Mercantile Exchange at 11:31 a.m. in Singapore after advancing as much as 33 cents earlier. The contract added 34 cents to $63.10 on Monday. The more actively-traded July contract climbed 0.4% to $63.43.
Brent for July settlement increased 22 cents, or 0.3%, to $72.19 a barrel on the London-based ICE Futures Europe exchange. The contract fell 24 cents to $71.97 on Monday. The spread between the first and second month contracts remains in strong backwardation, where prompt prices are higher than later-dated prices, indicating tight supply. The global crude benchmark traded at a $8.75 premium to WTI for the same month.
At the meeting over the weekend, oil ministers from Saudi Arabia and fellow OPEC producers signalled they were inclined to extend the production cuts into the second half of 2019. Al-Falih said the kingdom “isn’t fooled” by crude prices and believes the market is still fragile. While suggesting he is open to relaxing the cuts, Russia’s Novak also said the country would still comply with any agreed output limit until year-end.
Meanwhile, China’s envoy to the EU said the Trump administration’s move against Huawei is “wrong behaviour,” and “there will be a necessary response.” Zhang Ming in an interview in Brussels on Monday called the US move against Huawei as “politically motivated” and an “abuse of export-control measures.” Trump said he was “ very happy” with the trade war and that China wouldn’t become the world’s top superpower under his watch.
The MSCI Asia Pacific Index fell as much as 0.5% to near the lowest level in almost four months on Monday. The index has dropped more than 5% this month as trade tensions escalated between the US and China.For all the latest energy and oil news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.