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Crude oil prices surged amid production cut by the OPEC members and building optimism over the U.S-China trade talks. The larger than intended production cut by OPEC members is one of the major factors which is supporting the crude oil prices. The benchmark Brent Oil futures rose and marked a 3-month high of approximately US$ 67.72 on 22nd February 2019.
However, the benchmark oil is still hovering around US$64.60 (as of 26th February 2019, 08:18 GMT) amid concern over the rising U.S crude oil output. The weekly U.S. crude oil inventories reported at 3.7M on 21st February 2019, which marked a significant gain over the market expectations of 2.9M. The weekly inventory also surpassed the previous week rise in the U.S crude oil output which was reported at 3.6M. The rising crude output from the U.S. is capping the gain in crude oil prices, yet crude oil managed to hit a three-month high.
In the absence of domestic demand and increased production in the U.S., its crude oil is hitting the global market and strengthening the supply chain. However, the impact of high supply is offset by the voluntary production cut by the OPEC members.
The ongoing trade talks to bring a resolution in the ongoing trade war between U.S-China is further supporting the crude oil prices by enhancing the global economic outlook. The betterment in the economic outlook led to an expectation of higher energy demand, which in turn support the crude oil prices.
Previously the crude oil market chocked over the International Monetary Fund (IMF) report of global slowdown and forecast of a global recession. The crude oil prices reacted over the forecast and dropped from US$86.74 barrels (October month high) to US$49.93 barrels (December month low). The sign of respite over U.S-China trade war coupled with a better performance by major economies in the first quarter of 2019, marked a rally in the crude oil prices.
However, U.S. President Donald Trumpâs tweet addressing directly to the OPEC caused a drastic fall in crude oil prices, and the prices reached a dayâs low of $64.54 on 25th February 2019. The U.S. president Donald Trump warned OPEC to take it easy on production cut and said the recovering economy could not bear the pressure of rising crude prices.
The global energy outlook looks steady. The enhanced stance by various governments and agencies to curb the coal production due to its high carbon emission is further supporting the crude oil prices. The transformation of countries to shift towards the zero-emission economies in line with the Euro 6 emission standard is raising awareness about the dire impact of coal production. Hence coal is seeing pressure and is marking an absence for energy production.
In the absence or less coal usage in the energy production, crude oil is taking a major share in the usage for energy generation, and thus the demand for the oil is raising.
As per Goldman Sachs, the oil prices could go wild in 2019. The investment bank said that the Brent crude could rise to $70--$75 per barrel and producers should take advantage of the rising price to lock in the future stream of cash flows as the investment bank believes that the rising price could prove fleeting when New Oil Order hits the market.
Heightened demand coupled with voluntary production cut from major oil producers is providing a cushion to the crude oil prices. However, to completely gauge the price movement and future forecast market participants are eyeing over the development in U.S-China trade talks, and its impact on the global economic conditions. Oil investors are keeping a hawk eye over the U.S building inventories and its impact on the supply side of the energy market.
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