Oil prices dropped by 2% on Friday but were on track for weekly gains after financial markets strengthened on hopes the United States and China would resolve their trade dispute, as per CNBC.
Crude futures fell shortly after U.S. crude hit a five-week high of over USD 53 a barrel and moved above its 50-day moving average for the first time since mid-October.
International Brent crude futures were at USD 60.66 a barrel early Friday morning, down USD 1.02. U.S. West Texas Intermediate crude futures were down USD .86, to USD 51.73 per barrel. They are both expecting consecutive weekly gains, rising about 8% and 6% respectively.
According to CNBC, tightened supply following OPEC-led crude production cuts aided earlier 1% increases for both oil benchmarks, however concerns about the global economy kept markets in check.
“Profit- taking has weighed on oil prices in today’s trading session following gains made earlier in the week,” said Abhishek Kumar, senior energy analyst at Interfax Energy in London. “A lack of tangible progress in the U.S.-China trade talks, ongoing political uncertainty in the U.S., and fears that China’s weakening economy could adversely hit global oil demand have also contributed toward the weakness in oil prices.” he later added.
Markets are optimistic that the trade-war between Washington and Beijing will be averted. Three days of trade talks concluded this week with no notable announcements, but higher-level talks may convene later this month, as stated by CNBC.
However, markets are still concerned with the decline in China’s market growth in 2018, and 2019 will mark the lowest its ever been since 1990. Most analysts have lowered their global economic forecasts below 3% for 2019, with some fearing a recession amid a growing debt, and ongoing trade disputes.
“If we experience an economic slowdown, crude will underperform due to its correlation to growth,” said Hue Frame, a portfolio manager at Frame Funds in Sydney.
As per CNBC, on the supply side, oil markets are receiving support from supply cuts headed by the Organization of the Petroleum Exporting Countries and aimed at reducing the overabundance of oil that emerged in the second half of 2018.
The United States was the primary culprit in the emerging glut of oil in 2018. Crude oil production rose by more than 2 million barrels per day (bpd) in 2018 to a record 11.7 million bpd.
Consultancy JBC Energy this week said it was probable that U.S. crude production was “significantly above 12 million bpd” this month.