Last week, the Organization of the Petroleum Exporting Countries (OPEC) and OPEC+ including Russia agreed to increase output cuts from 1.2 million barrels per day (bpd) to 1.7 million bpd in an attempt to balance the market and to support prices. Yet oill prices fell for a second day in a row on Tuesday as a slowing global demand outlook outweighed OPEC’s agreement to cut production in 2020
Brent crude was down 33 cents, or 0.5%, at $63.92 per barrel by 1134 GMT while West Texas Intermediate oil was 29 cents, or 0.5%, lower at $58.73 a barrel.The benchmarks had fallen 0.2% and 0.3% respectively on Monday.
The OPEC decision is a response to global demand contraction brought about by the ongoing US-China trade war. Gazprom Neft CEO Alexander Dyukov said on Tuesday a decision by OPEC and its allies to cut output would help support oil prices at $55-65 per barrel in the first quarter.There was not a great deal more OPEC+ could have done, though I believe the cut was insufficient and to shock the market they should have cut by 1 million barrels a dy. That would provide medium term support in the face of increased no OPEC supply from Shale, Brazil and Norway. The main imponderable is however the ultimate outcome of the US-China trade war which shows very little sign of abaiting. December 15th marks the next deadline in this trade war with the US poised to impose another round of tariffs of some $156bn on Chinese imports. The Agriculture Secretary Sonny Perdue said on Monday - that President Trump did not want to impose these tariffs but he wants “movement” from China to avoid them. There is little likelihood China will proffer the sort of concessions the Trump Administration wants to see.
Data released on Sunday increased bearish sentiment as it showed an unexpected contraction of exports from China in November down 1.1% from a year earlier,
China has witnessed growth in imports of major commodities in recent months, providing optimism that Beijing’s stimulus efforts may be working and that the impact of the trade war maynot stiffle growth as much as it has been feared.The market will also be looking at the EIA inventory data which will be published on wednesday.