LONDON¾Oil prices fell nearly 2% on Jan. 11 but were on track for weekly gains after financial markets strengthened on hopes the United States and China may soon resolve their trade dispute.
Tightened supply following OPEC-led crude production cuts aided earlier 1% increases for both oil benchmarks, but concerns about the global economy kept markets in check.
International Brent crude futures were at $60.55 per barrel in the morning, down $1.13, or 1.83%. U.S. West Texas Intermediate (WTI) crude futures ell 87 cents to $51.72 per barrel.
WTI and Brent are set for their second week of gains, rising nearly 8% and 6% respectively.
“Profit-taking has weighed on oil prices in today’s trading session following gains made earlier in the week,” said Abhishek Kumar, senior energy analyst at Interfax Energy in London.
“A lack of tangible progress in the U.S.-China trade talks, ongoing political uncertainty in the U.S., and fears that China’s weakening economy could adversely hit global oil demand have also contributed toward the weakness in oil prices.”
Markets had been supported by hopes that an all-out trade war between Washington and Beijing might be averted. Three days of talks concluded this week with no concrete announcements, but higher-level talks may convene later this month.
However, markets remain concerned by mounting signs that China’s growth in 2018 and 2019 will be the lowest since 1990.
Most analysts have downgraded their global economic growth forecasts below 3% for 2019, with some fearing a recession amid trade disputes and spiraling debt.
“If we experience an economic slowdown, crude will underperform due to its correlation to growth,” said Hue Frame, portfolio manager at Frame Funds in Sydney.
On the supply side, oil markets are receiving support from supply cuts led by OPEC and aimed at reining in a glut that emerged in second-half 2018.
Lower oil exports from Iran since November, when U.S. sanctions against it resumed, have also supported crude.
Playing a key part in the emerging glut was the United States, where crude oil production soared by more than 2 million barrels per day (bbl/d) in 2018 to a record 11.7 million bbl/d.
Consultancy JBC Energy this week said it was likely that U.S. crude production was “significantly above 12 million bbl/d” by this month.