Oil outlook: Saudi and US cuts boost bullish outlook
Oil prices, which have rallied from the lows of last year, have been bolstered by news that key centres of production look to be cutting back on output.
The prospect of higher than expected cuts to Saudi oil output have helped crude prices to stabilise in recent days, reviving hopes that the bounce back in oil prices has further to go. An interview with Bloomberg saw the Saudi energy minister suggest that February output would be closer to 10.1 million barrels per day (bpd), compared to the ceiling of 10.3 million bpd agreed in the recent Organisation of the Petroleum Exporting Countries (OPEC) decision.
In addition, the minister said that output would be well below its ceiling for a full six months, unless unforeseen deficits require an uplift in production. Saudi Arabia’s decision to ease on production will likely provide a firmer foundation for oil prices, which, while they have risen from the lows of last year, continue to be significantly down on the peaks seen in 2018.
Another bullish factor for oil would be the expected slowdown in US shale production. From being a wild growth area, American output is expected to slow as investors demand that companies focus on turning a profit rather than concentrating on production at any cost. From over 2.5 million bpd in 2017, output is expected to slow to 1.5 million bpd in 2019 and 0.75 million bpd in 2020, according to Standard Chartered forecasts.
The one concern is that the global economy is due a further slowdown, even if it avoids outright recession. The eurozone looks set for more weakness, and Asia is also hobbled by weaker growth. While the US is the bright spot in this picture, it is debatable whether the weaker growth outlook abroad will hit the US or whether America will power ahead and drag other economies into growth.
After a period of consolidation, WTI prices have begun to move higher. Dips towards the $51.00 level have found buyers, indicating that there is further buying momentum to drive the price higher. The price hit $56.00 at the beginning of February, returning to a level not seen since the second half of November. Further gains target the $57.90 level, the lows of February last year.
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