Oil price remains above $35 on hopes for production deal
Weaker Chinese data failed to dampen renewed investor interest in oil as Brent oil prices stayed comfortably above the $35-threshhold on Monday, the first trading day of February.
A barrel of Brent traded at $35.42 at 9.45am UAE time on February 1, 2016, down 57 cents – or 1.58 per cent – from the $35.99/b it traded during the weekend.
Meanwhile, a barrel of WTI (West Texas Intermediate) was down 51 cents, or 1.52 per cent, to $33.11 at the same time.
Last week, global oil prices rose to a three-week high, surging by as much as 30 per cent from 12-year lows hit the previous week as speculation rose about a deal between the major oil exporters to slash production.
Investors disregarded China posting its weakest manufacturing data since 2012, with the official Chinese PMI [Purchasing Managers’ Index] hitting 49.4 in January, according to the National Bureau of Statistics, down from 49.7 the previous month.
A separate survey conducted by Caixin, a media group, showed Chinese manufacturing PMI at 48.4 in January, a slight improvement from 48.2 in December. The index has now been below 50 for 11 consecutive months.
Any number below 50 represents a deceleration in the manufacturing sector.
Analysts maintain that a weaker Chinese economic growth in 2016 – and therefore lower oil demand – has already been factored into current oil prices.
As several market watchers have pointed out, oil is primarily facing an oversupply issue rather than a demand issue, with no agreement (so far) between Opec and non-Opec members on if and how much to curtail production by.
Weaker demand is only adding fuel to the proverbial fire, with the current Opec oil production at 32.60 million barrels per day (bpd), its highest in years. This is more than 1mbpd in excess of the demand, leading to oil prices dropping by more than two-thirds in a supply-sensitive market.
The oil market rallied for four straight sessions last week after a renewed call from the Organisation of the Petroleum Exporting Countries (Opec) for joint efforts with rival producers to cut supply triggered commends showing Russia’s eagerness to strike a production deal with the oil organisation, something it had been refusing to do for 15 years.
Russia’s Foreign Ministry spokeswoman Maria Zakharova said on Friday that Foreign Minister Sergey Lavrov will be visiting the Opec-member UAE and non-member Oman this week (February 2-3), raising the spectre of a production agreement between major oil exporters.
However, some analysts believe hopes for a production deal between Opec and non-Opec members is a non-starter given that two of the world’s bigger exporters – Iraq and Iran – are not part of the supposed discussions to slash production.
“We do not expect such a cut will occur unless global growth weakens sharply from current levels, which is not our economists’ forecast,” Reuters quoted from a report by investment bank Goldman Sachs.
Other analysts said prices may have found a bottom and could rally as high as $45 by year-end as non-Opec supply is reduced and global demand improves.
“With more energy companies announcing cuts and Opec contemplating a cut, it looks like oil is forming a bottom,” said Phil Flynn, an analyst at Price Futures Group in Chicago.
“Now the question becomes how high can they go. The charts look like a test near $40 is on the cards.”
Follow Emirates 24|7 on Google News.