Crude Oil Prices Took A Bullish Stance Amid Concern Over Lack Of Supply

  • Feb 19, 2019 AEDT
  • Team Kalkine
Crude Oil Prices Took A Bullish Stance Amid Concern Over Lack Of Supply

Crude oil prices soared and jumped to a three-month high amid production cut by Saudi Arabia and development in U.S-China trade talks. The production increase by the U.S. and decreased demand in the global market amid concerns on global slowdown exerted pressure on crude oil prices, as seen lately. But in the recent events, Saudi Arabia disclosed that it plans to cut the crude oil production more than it initially intended last week which in turn supported the crude prices that now surged to a three-month high level.

The Benchmark Brent crude rose till $66.37 (as on 18th February 2019) and Brent crude is having the best first quarter performance since 2011, with a solid 25 percent gain for the year 2019.

The Saudi energy minister, Khalid al-Falih said that the kingdom would cut the production to about 9.8 million barrels a day in March, which would mark a production cut of more than 500,000 barrels per day below Saudi's initial target under the deal agreed with global producers. The U.S. ongoing ban imposed on Venezuela's state-owned oil company, PDVSA is also tightening the supply in the market and combined with further production cut from Saudi Arabia it is also supporting the crude prices and offsetting the pressure of U.S. Shale production increase.

Another factor which is building optimism among oil investors is the ongoing trade talks between the U.S. and China to bring the resolution for ending the long going trade dispute between the two major economies. After the initial round of talks between the delegation of two countries in Beijing, the representatives of the world's two largest economies will be meeting in Washington this week for another round of trade talks. The development is further building optimism among market participants that the long going trade war between U.S.-China could be averted, and some deal could be reached.

The consent and willingness of U.S. President Donald Trump to bring a solid deal with the counterpart, is also supporting the global economic outlook and in turn supporting the crude oil prices. The U.S President was very reluctant to make any deal previously and the recent actions taken by the President brought some hopes to the market participants that an agreement could be reached and the worsening effect of the trade war on global economy could vanish or least reduce.

Hopes for a resolution from the ongoing trade deal and production cut by Saudi Arabia is providing enough impetus to offset swelling U.S. shale production and in turn, supporting crude oil prices.

However, there are still worries in the market that U.S. President Donald Trump could instigate another significant trade war with Europe. The U.S. President received a new government report, which outlines whether the Europe auto industry is a national threat, which might lead to higher tariffs and in turn can prompt another instance of trade war between the U.S and Europe.

Any betterment in the global economic outlook can support crude oil prices because of crude oil broad application in energy generation globally, and likewise any countermeasures and relevant policy changes that can dampen the global growth outlook can, in turn, hamper the price movement.

As at February 19, 2019, the price for Brent crude oil was seen to be slipping by over 1%.


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