Oil Halts Gains as Economic Risks Assessed Against OPEC+ Cuts

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Oil Halts Gains as Economic Risks Assessed Against OPEC+ Cuts

(Bloomberg) — Oil halted gains near a two-month high as investors weighed concerns over outlook for the global economy against the OPEC+ coalition’s performance on pledged output cuts.

Futures in New York fell 0.7 percent from the close on Friday, when it added 3.3 percent. Bullish signals from the Organization of Petroleum Exporting Countries and its allies on supply curbs have eased investor fears of a glut. Still, trade and political tensions are weighing on prices. Chinese President Xi Jinping signaled fresh concerns about the implications of a slowing economy while the International Monetary Fund cut its global growth forecast.

Oil’s off to the best start in 18 years after a slump in the last quarter as OPEC and its partners began new production curbs aimed at removing 1.2 million barrels a day from the market through June. A drop in the number of rigs drilling for oil in the U.S. to the lowest since May have also eased worries about a glut from record-breaking shale flows. Yet, concerns linger after China’s economy expanded at the slowest annual pace since 1990.

“Concerns about excess supply have been eased for the time being thanks to OPEC’s production cuts, led by Saudi Arabia,” said Kei Kobashi, a senior analyst at Sumitomo Corporation Global Research Co. “Now, the demand side is called in question. People are trying to figure out how much China’s and the world’s crude demand will fall.”

West Texas Intermediate crude for February delivery, which expires Tuesday, was at $53.43 a barrel on the New York Mercantile Exchange, down 37 cents, at 4:36 p.m. in Tokyo. The more active March contract fell 35 cents to $53.69. There was no settlement on Monday because of the Martin Luther King Jr. holiday in the U.S. All transactions will be booked on Tuesday.

Brent for March settlement declined 42 cents to $62.32 a barrel on the London-based ICE Futures Europe exchange. The contract rose 4 cents to $62.74 on Monday. The global benchmark crude was at an $8.57 premium to WTI for the same month.

The IMF on Monday lowered its forecast for the world economy for a second time in three months. The lender now predicts global growth of 3.5 percent this year, down from 3.7 percent expected in October and the weakest in three years. The fund warned fresh trade tensions would spell further trouble.

Meanwhile, Xi urged the Communist Party needed greater efforts “to prevent and resolve major risks,” according to the official Xinhua News Agency. He made the remarks on the same day that China reported its quarterly economic growth fell to 6.4 percent, the weakest since 2009.

OPEC last week published output targets by country in the first half of 2019 in an effort to quash skepticism over production curbs. Still, International Energy Agency data suggested the group’s compliance jumped in December while non-OPEC’s adherence rate fell to the lowest since they started such cuts in 2017.

To contact the reporter on this story: Tsuyoshi Inajima in Tokyo at tinajima@bloomberg.net

To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net, Ovais Subhani, Heesu Lee

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