Oil futures fell to start the week after briefly touching on their highest intraday levels this year. Now the prices reflect an adjustment to balance out most of what they gained last week, probably as the result of concerns over energy demand slowdown.
Indeed, the latest surveys describe that OPEC’s crude oil production fell last month by its highest decline in two years. Again, this comes only after the initial production cut deal made back in January of 2017. And according to most recent Reuters monthly survey that tracks supply to the market, shipping data and oil company data suggests OPEC’s crude oil production last month was just shy of 31 million bpd, which is down nearly 900,000 bpd from the numbers in December.
According to Sevens Report co-editor Tyler Richey, “There have been a lot of shifting pieces in the oil market to start 2019 as a dovish [Fed], and subsequently weaker dollar, sanctions on Venezuela, and solid January jobs data all supported energy gains last week.”
You may recall that the oil prices have increased since the US Treasury announced the seizure of $7 billion in Venezuelan state oil assets from PDVSA. In addition, the US sanctions against Venezuela will impact $11 billion in exports as Congress moves to support the Latin American country’s newly self-declared leader, Juan Guaido.
But there are other factors behind the oil market’s rally. For one, supply cuts imposed by OPEC member-states and their allied oil producers. This oil cartel and the world’s largest oil producer—Saudi Arabia—both slashed output more than what had been forecast in the OPEC deal, adjusting down to 10.2 million bpd in January; and they aim to produce about 100,000 barrels less in the month of February.
These demand concerns have simply been reignited after learning that both Chinese and US economic data are weak. This means futures will probably give back all of the gains made in early trade. Thus, Richey goes on to say, “The strong jobs report was priced in with Friday’s sizeable rally, but traders seem to have already looked past the data and onto the most recent global releases, which were on balance, disappointing.”