Oil dips on weak economic outlook, but Opec-led cuts still support

[SINGAPORE] Oil prices dipped early on Monday, weighed down by concerns that a global economic downturn may dent fuel consumption.

However, crude markets remain broadly supported by supply cuts led by producer group Opec and by aggressive sanctions by the United States against Iran and Venezuela.

Brent crude oil futures were at US$67.03 per barrel at 0053 GMT, down 13 cents, or 0.2 per cent, from their last close, but not far off the US$68.14 per barrel 2019-high reached last week.

US West Texas Intermediate (WTI) futures were at US$58.37 per barrel, down 15 cents, or 0.3 per cent, from their last settlement, and also not far off their 2019-high of US$58.95 from the previous week.

"The greatest downside risk to our oil price view is demand weakness on slower economic growth. Our base case is that global oil demand will increase by 1.3 million barrels per day (bpd) in 2019... A synchronised global slowdown in growth could push global demand growth to below 1 million bpd," analysts at Bernstein Energy said on Monday.

Despite this, oil prices have gained around a quarter since the start of the year amid US sanctions against Iran and Venezuela, and as the Organization of the Petroleum Exporting Countries (Opec) and non-affiliated allies like Russia - known as Opec+ - have pledged to withhold 1.2 million bpd in supply to prop up prices.

Top crude exporter and Opec's de-facto leader Saudi Arabia said on Sunday balancing the oil market was far from done as inventories were still rising, signalling it may need to expand output cuts into the second half of 2019.

Russia also said production cuts would stay in place at least until June.

Analysts said the Opec+ cuts would result in lower oil inventories.

"We expect inventories to draw with Opec cuts coming into effect and supply disruptions elsewhere," Bernstein Energy said in a note.

As a result, Bernstein forecast an inventory draw of 37 million barrels in the first quarter for the 36 member countries of the Organisation for Economic Co-operation and Development (OECD), which comprises most industrialised nations.

Key for the supply and demand balance of oil markets will be the United States, where crude production has soared by around 2 million bpd over the past year, thanks largely to an onshore boom in shale formation drilling.

But the number of rigs drilling for new oil production in the United States has been falling in 2019, and hit its lowest level since April 2018 last week, at 833 operating rigs.

US crude oil production still increased at the start of 2019, hitting a record 12.1 million barrels per day (bpd) in February, but output has since dipped back to 12 million bpd, data from the Energy Information Administration (EIA) showed.

REUTERS